Warsh Triggers Interest Rate Hike Bets with Jackson Hole Speech
Kevin Warsh, former member of the Federal Reserve Board, spoke at Jackson Hole and may have sent a subtle message to Wall Street. He never explicitly mentioned a September interest rate hike, but traders increased their bets on one.
The probability of a September increase climbed from 36% before his speech to 66.4%, according to FedWatch tool, which reads probabilities off 30-day federal funds futures.
Warsh's comments have been seen as a departure from the Federal Reserve's traditional practice of forward guidance, where it tells markets in advance what policy is heading.
He warned of a 'hall-of-mirrors problem', where the Fed reads market prices that are themselves only a reading of the Fed. He said market participants should not look primarily to the central bank for their next trade.
The Maradona theory of interest rates, named after Diego Maradona's second goal against England in 1986 World Cup quarter-final, suggests that sometimes the most powerful monetary policy move is the one a central bank never explicitly makes.