Warsh's Speech: A Pivotal Test for Fed Credibility on Inflation

US Federal Reserve Chairman Kevin Warsh is under pressure to address high inflation in his upcoming speech at Jackson Hole. Investors are urging him to provide a clear commitment to price stability, which could boost the long end of the Treasury market and bring down yields.

JPMorgan Chase & Co., Apollo Global Management Inc., and Morgan Stanley expect Warsh's speech to be a pivotal test for the chairman, whose evasive communication style has raised doubts about the Fed's dedication to controlling inflation.

US inflation has remained above the 2% target for five years, while 30-year Treasury yields have sat above 5% for two months. Persistently high borrowing costs are weighing on the US housing market and small businesses.

Fed watchers at JPMorgan say a clear condemnation of high inflation from Warsh would result in lower term premium, which measures how much extra compensation investors demand to shoulder the risk of owning longer-term US debt.