Warsh Faces Market Volatility Test at Jackson Hole

As the Kansas City Fed's Jackson Hole Economic Policy Symposium approaches on August 27-29, Federal Reserve Chairman Kevin Warsh faces a critical test in communicating his rejection of forward guidance.

DBS Bank strategist Philip Wee argues that Warsh's stance has amplified market volatility and complicated policy mix with the Treasury.

Without a clear framework, reduced forward guidance could be seen as a source of uncertainty for financial conditions and Fed independence, rather than a return to market price discovery.

Warsh needs to explain how a Fed without forward guidance intends to anchor expectations, how much tightening the Fed is prepared to tolerate through long-term yields, and the policy boundary between the Fed and the Treasury.