Warsh's Jackson Hole Speech: A Test of Independence Amid Rising Bond Yields

US Federal Reserve Chairman Kevin Warsh's debut speech at the annual Jackson Hole conference 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 wants to wait for recommendations from five task forces established at the start of his tenure before getting too detailed about his plans, but markets have already sped towards a conclusion that the Fed's policy interest rate needs to be higher. U.S. inflation has been above the 2% target for more than five years, and Warsh's colleagues are concerned that if the 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 'both the bond market and the FOMC have clearly decided to wake up' to account for higher inflation and a secular uptrend in interest rates. He advised Warsh 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.