Warsh Aims to Reestablish Fed Credibility at Jackson Hole Economic Symposium

At the Jackson Hole Economic Symposium in Wyoming, Federal Reserve Chair Kevin Warsh will deliver a keynote speech this Friday morning. The event is expected to be an opportunity for Warsh to reestablish the central bank's credibility with markets by explaining how the Fed will respond to changing economic conditions.

The US economy has been experiencing prolonged instability in the Treasury market, high inflation readings, and significant underemployment problems. PCE inflation rose 3.7% over the past year, while long-term Treasury yields have spiked amid concerns about government borrowing and fiscal policy.

Marks Zandi from Moody's Analytics expects Warsh to reaffirm the Fed's 2% inflation target, but also provide more clarity on his communication strategy. Isaac Wheeler believes that Warsh may be able to maintain a tight-lipped approach while signaling his seriousness about tackling inflation by beating the drum on the Fed's price-stability mandate.

Warsh will have to navigate the intersection of the Treasury's management of the bond market and the Fed's management of monetary policy, which raises questions about where the Fed's responsibilities end and Treasury's begin. The immediate market reaction will be the clearest measure of how Warsh's remarks land, with Zandi expecting him to discuss broader forces affecting inflation and growth.