Warsh Set to Reaffirm Hawkish Stance at Jackson Hole

Fed Chair Kevin Warsh is set to deliver his first speech at the annual Jackson Hole Symposium, and markets are closely watching for any signs of a change in policy direction. According to Michael Kramer, Warsh's message will likely remain unchanged, as he believes a market free from Fed forward guidance is beneficial.

The current low 10-year term premium, averaging around 150 bps before QE, indicates that the bond market is still relatively confident about the Fed's next moves. However, with the recent rise in long-end rates and the global rate hike trend led by Japan, it is likely that the US will follow suit.

Kramer notes that allowing the yield curve to steepen, which would push the 10-year above 5%, could be a more effective way for the Fed to tighten financial conditions. This approach focuses on higher long-end rates feeding through to mortgage rates, corporate borrowing costs, and equity multiples, rather than relying solely on the funds rate.