Warsh's Jackson Hole Speech: A Focus on Structural Themes Rather Than Rate Expectations

TD Securities strategists expect Kevin Warsh's Jackson Hole speech to focus on structural themes such as productivity, AI-driven growth, and Federal Reserve regime change. They argue that rate expectations will remain anchored, limiting a sustained directional move in the US Dollar (USD). The strategists predict that USD price action will be driven more by volatility and perceptions of inflation credibility than by new forward guidance.

The team at TD Securities believes that Warsh's speech will likely generate more volatility than trend. They expect markets to search for policy clues that are not there, leading the dollar to struggle in establishing a sustained direction unless Warsh delivers a clear message on inflation credibility.

In their view, any effort by Warsh to address concerns around the credibility of the Fed's inflation-targeting framework could weigh more heavily on the USD. The strategists warn that markets may be skewed modestly to the downside, and only limited support for the dollar may come from a hawkish clarification on inflation credibility.