Kevin Warsh delivers his first Jackson Hole keynote as Fed chair on August 28, under pressure to say whether persistent inflation is a problem after 65 straight months above the Fed's 2% target. Treasury yields already ticked higher on Thursday as bond investors positioned ahead of the speech, and three policymakers dissented at the Fed's last meeting in favor of a hike.
Kevin Warsh takes the stage Friday at the Kansas City Fed's 49th annual Economic Policy Symposium in Jackson Lake Lodge, Wyoming, for his first keynote as Fed chair. Investors and analysts are treating the address as an early test of whether he will finally say plainly if current inflation counts as a problem.
The stakes are high because the numbers have not moved. The Fed has missed its inflation target for 65 consecutive months, and July's headline PCE index came in at 3.7%. Auto prices rose at roughly a 5% annualized pace in July, while housing and utility costs increased at more than a 3.5% rate.
A credibility test after months of vague guidance
Warsh has so far avoided detailed talk about the economy or possible rate moves in his press conferences after the Fed's June and July meetings, leaning instead on longer-term issues under study by Fed task forces. That vagueness has drawn criticism: Gregory Daco, chief economist at EY-Parthenon, said the muted messaging has left markets concerned about the Fed's independence, questioning whether Warsh is reluctant to discuss rate hikes to avoid angering Trump.
At the Fed's July 28-29 meeting, three policymakers dissented against holding the policy rate steady in its current 3.50%-3.75% range, pushing instead for a rate hike. Boston Fed President Susan Collins said Wednesday: "it will be appropriate to tighten policy soon" if inflation progress fails to materialize.
Yields already moving ahead of the speech
Bond markets are not waiting for Friday. The 10-year Treasury yield ticked up to 4.666% on Thursday, rebounding from a two-week low, while the 2-year yield rose to 4.230% and the 30-year climbed to 5.186%. The moves came as a stabilizing energy market and lingering inflation anxiety prompted trading desks to trim duration positions ahead of fresh central bank guidance.
Treasury Secretary Scott Bessent's move to expand the government's debt buyback program has added another layer of complexity, since Warsh has said he wants markets to set long-term rates without government interference. Only one more employment report and August's inflation data will land before the Fed's September 15-16 meeting, leaving Warsh little room to stay vague much longer.
Sources: Crypto Briefing, Investing.com (Reuters), Investing.com
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