Archive · 26 Aug 2026
Kevin Warsh’s Jackson Hole Test: Taming Inflation Without Bond Shock
Kevin Warsh leads the Federal Reserve and is about to give an important speech.
He needs to explain how the Fed will lower inflation toward 2%.
Inflation is still higher than that goal, rising 3.7% over the year through July.
Because of this, investors think interest rates might need to rise in September.
At the same time, long-term government borrowing costs have increased.
Treasury Secretary Scott Bessent wants to buy more bonds to help bring those costs down.
That could make it harder for the Fed to keep financial conditions tight enough to reduce inflation.
Investors are waiting for Warsh to explain how he sees these competing problems.
Federal Reserve Chair Kevin Warsh is preparing for his first Jackson Hole speech.
U.S. inflation rose 3.7% over the 12 months through July, above the Fed’s 2% target.
Markets now see a 40% chance of a September rate hike, up from 36% before the data.
The 10-year Treasury yield was around 4.65%, while the 30-year yield remained above 5%.
Treasury Secretary Scott Bessent has expanded planned long-term bond buybacks, creating tension with the Fed’s inflation-fighting goals.
- Who
- Federal Reserve Chair Kevin Warsh, Treasury Secretary Scott Bessent, investors and economists.
- What
- Warsh is preparing to address inflation, interest rates and pressure in the Treasury bond market.
- When
- Ahead of Warsh’s first Jackson Hole speech on Friday; the inflation data covered the 12 months through July.
- Where
- At the Jackson Hole economic-policy conference in the United States.
- Why
- Inflation remains above the Federal Reserve’s 2% target while long-term Treasury yields and borrowing costs are elevated.
Lower long-term borrowing costs and clearer guidance
Tighter financial conditions and data dependence
Treasury bond buybacks
Lower long-term borrowing costs and clearer guidance
The Treasury supports larger long-term bond buybacks to support Treasury prices and lower long-term borrowing costs.
Tighter financial conditions and data dependence
The Federal Reserve needs financial conditions to remain sufficiently tight to help bring inflation down, creating a potential policy clash.
Central-bank communication
Lower long-term borrowing costs and clearer guidance
Economists cited in the article say Warsh needs to clearly explain how the economy works and how policy choices will improve outcomes.
Tighter financial conditions and data dependence
Warsh has moved away from extensive forward guidance, preferring to let markets interpret incoming economic data rather than specifying the Fed’s next steps.
Asset-market intervention
Lower long-term borrowing costs and clearer guidance
The Treasury’s intervention is intended to ease pressure in the bond market and reduce borrowing costs.
Tighter financial conditions and data dependence
Warsh has argued that the Federal Reserve’s past purchases of government bonds and mortgage-backed securities distorted financial-asset pricing.
- Inflation measure
- The Personal Consumption Expenditures Price Index rose 3.7% in the 12 months through July.
- Federal Reserve target
- The Fed’s inflation target is 2%.
- September rate-hike odds
- Markets priced in a 40% chance of a rate hike, compared with 36% before the inflation data.
- No-change odds
- Markets priced in a 60% chance that rates would remain unchanged.
- 10-year Treasury yield
- The 10-year yield was around 4.65% on Wednesday.
- 30-year Treasury yield
- The 30-year yield remained above 5%.
- Bond buybacks
- Scott Bessent doubled planned long-term Treasury bond buybacks and indicated larger purchases could follow.