Warsh Faces Market Backlash at Jackson Hole
Fed Chair Kevin Warsh takes the stage at Jackson Hole on Friday morning with a daunting task ahead of him. The Federal Reserve's preferred gauge, the personal consumption expenditures index, rose 0.2% in July, leaving inflation above the 2% target for a 65th consecutive month.
The Fed Chair has been clear about his destination: 'There is no soft inflation target. There's only a target, and it's 2%.' But he hasn't offered a route forward yet, as five internal task forces review how the Fed operates. This includes one on communications, which Warsh has so far avoided.
The market has moved in the opposite direction of what the hawks are demanding, with the probability of a September hike at around 40% according to CME's FedWatch tool. Investors are pricing less restriction than the committee's hawks want, and Friday's speech has to address this gap.
The real test for Warsh is in the bond market, where US national debt has passed $40 trillion. Yields on 10 and 30-year Treasuries have climbed sharply, pushing up borrowing costs across the economy. Treasury Secretary Scott Bessent announced plans to at least double buybacks of 10 to 30-year bonds to support prices and pull yields lower.