5 days ago
Investors Urge Warsh to Prioritize Inflation in Jackson Hole Speech
Investors are waiting to hear what Kevin Warsh says about inflation.
They want him to clearly say that controlling rising prices is a top priority.
If investors believe him, they may buy more long-term government bonds.
That could make borrowing costs fall.
Long-term Treasury yields have been high because of inflation, large government debt, and heavy borrowing.
Warsh’s earlier comments made some investors uncertain about the Federal Reserve’s plans.
New jobs and inflation reports will also help determine what the central bank does next.
The market is currently pricing in about a 35% chance of a quarter-point rate increase in September.
Investors want Federal Reserve Chairman Kevin Warsh to strongly reaffirm the central bank’s inflation-fighting commitment.
A clear inflation message could encourage buying of 30-year Treasury bonds and reduce long-term yields.
The 30-year Treasury yield reached 5.34% last week, its highest level since 2007, before trading near 5.19%.
Analysts say Warsh’s unclear July communication increased uncertainty about inflation policy and the possibility of future rate hikes.
Markets will also focus on upcoming employment and consumer-price data before the Federal Reserve’s September policy decision.
- Who
- Federal Reserve Chairman Kevin Warsh, investors, and analysts from JPMorgan Chase, Apollo Global Management, and Morgan Stanley.
- What
- Investors are urging Warsh to use his Jackson Hole speech to reaffirm the Federal Reserve’s commitment to controlling inflation.
- Where
- At the Federal Reserve’s annual gathering in Jackson Hole, Wyoming.
- When
- Warsh is scheduled to speak on Friday, ahead of the Federal Reserve’s September 16 policy decision.
- Why
- A clearer inflation message could restore confidence in the Federal Reserve, support long-term Treasury bonds, and reduce elevated borrowing costs.
Inflation Clarity Advocates
Data-Dependent Caution
What Warsh should emphasize
Inflation Clarity Advocates
JPMorgan Chase, Apollo Global Management, and Morgan Stanley analysts want Warsh to clearly state that price stability is a priority.
Data-Dependent Caution
Other market participants say the data, especially employment and inflation reports, will ultimately determine the Federal Reserve’s decision.
How much guidance to provide
Inflation Clarity Advocates
Analysts say Warsh should provide a clearer framework than he did after the July meeting, without necessarily announcing the next interest-rate move.
Data-Dependent Caution
Bloomberg strategist Cameron Crise said markets may still rely on upcoming payroll and consumer-price data if Warsh avoids offering policy guidance.
Market consequences
Inflation Clarity Advocates
A stronger inflation commitment could improve Federal Reserve credibility, lower term premiums, and encourage purchases of long-term Treasury bonds.
Data-Dependent Caution
If Warsh remains unclear, long-term rates could move higher, while uncertainty could continue to affect the entire Treasury yield curve.
Key facts
- Inflation target
- US inflation has remained above the Federal Reserve’s 2% target for five years.
- 30-year Treasury yield
- The yield was about 5.19% in early Friday trading after reaching 5.34% the previous week.
- Yield milestone
- The 30-year yield last week reached its highest level since 2007.
- US debt
- US government debt has recently surpassed $40 trillion.
- Upcoming data
- The August jobs report and consumer price index data are due before the next Federal Reserve policy decision.
- Rate-hike odds
- Markets are pricing in roughly a 35% chance of a quarter-point rate increase in September.
- Treasury intervention
- Treasury Secretary Scott Bessent has pursued measures including a plan to buy back long-term bonds.
Quotes
Vishal Khanduja
Head of broad markets fixed income at Morgan Stanley Investment Management
“If the Fed is focused on inflation, term premium should get crushed because now the Fed is a lot more credible”
livemint.com
“He will have to deliver something that is clearer than the July press conference”
livemint.com
Sources
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