Warsh Grapples with Bond Yields and Independence at Jackson Hole

U.S. Federal Reserve Chairman Kevin Warsh faces a dilemma in his upcoming speech at the annual Jackson Hole conference, where he will need to balance discussing near-term policy with sticking to broader principles.

The speech has taken on added weight as traders and analysts look for guidance about the recent jump in bond yields and reassurance of his independence from the Trump administration.

Warsh has said he wants to wait for recommendations from five task forces established at the start of his tenure this spring before getting too detailed about his plans, but markets have already sped toward a conclusion that the Fed's policy interest rate needs to be higher.

The recent jump in U.S. and global bond yields has raised concerns that inflation is above the 2% target for more than five years, and Warsh's colleagues are concerned that if the policy-setting Federal Open Market Committee doesn't hike rates to get inflation back to that level, the central bank's credibility could suffer.

Adam Posen, president of the Peterson Institute for International Economics, said the Fed chief needs to dwell less on long-term ideas and more on how the central bank is evaluating the economy in the here and now along with the implications of recent global market developments.