Federal Reserve Chair Kevin Warsh delivers his first Jackson Hole keynote on Friday as inflation stays above target and long-term bond yields climb across major economies. The speech follows recent interference in bond markets by Treasury Secretary Scott Bessent, who has been trying to push down borrowing costs, and investors are watching for any signal on how Warsh plans to respond.
Warsh takes the podium at the Jackson Hole Economic Policy Symposium in Wyoming at 10am Eastern on Friday, with markets bracing for clarity on how the Fed will handle inflation if price pressures don't ease. Last month he stirred uncertainty by suggesting markets, not the Fed, should take the lead on tightening financial conditions.
A Fed-Treasury standoff over yields
Investors are also watching for Warsh's view on Bessent, who has been buying long-dated bonds to push down long-term U.S. borrowing costs. That move appears to put the Treasury on a collision course with the Fed, since lower borrowing costs would spice up the economy and could undermine the battle against inflation.
Ipek Ozkardeskaya, senior analyst at Swissquote, says the stakes are high because this is Warsh's first Jackson Hole speech as Fed chair, at a time when he is also trying to change how the Fed communicates policy to markets. She adds that investors are questioning how the Fed will respond to the Treasury's bond-buying, which could interfere with the transmission of its own policy to the economy.
Bond markets flash warning signs
Ahead of the speech, Germany's 10-year bond yield hit a 15-year high of 3.2847%, while the 30-year bund yield also reached a 15-year high of 3.7877%. France's 30-year debt costs climbed to an 18-year high of 4.9266%, and U.S. and UK borrowing costs rose too.
In the U.S., the 10-year Treasury note traded 2 basis points higher at 4.692%, the 30-year bond yield rose more than 2 basis points to 5.212%, while the 2-year note added less than one basis point to 4.234%. According to Kathleen Brooks, research director at XTB, "everything he says will be scrutinised by investors", even without direct guidance on rates.
Traders expect few specifics
Warsh, who took office in May for a four-year term, has so far shared very little commentary on the state of the economy or policy outlook, and some market watchers believe he will stay light on details and focus on broad themes instead. He has previously said he doesn't think forward-looking policy signals are useful outside of economic crises.
Deutsche Bank told clients Warsh's options include a "big-picture" address on the Fed's taskforces or AI's economic impact, or a more traditional speech that cleans up his July press conference. He was accused by investors of sending confusing signals at that first press conference, after he expressed commitment to curbing inflation without giving details.
Sources: The Guardian, CNBC
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