Federal Reserve Chairman Kevin Warsh will deliver a keynote address this morning at the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming. Investors will be closely watching the speech to get a better sense of how he plans to run the central bank for the world's largest economy.
What to expect: The theme of this year's conference is "Financial Innovation: Implications for Payments and Policy." But that doesn't mean the chair will hew to that topic. Nobody's expecting him to provide guidance on the Fed's policy path as he has previously said that he doesn't consider it to be useful during non-crisis periods. Rather, expect a
bigger picture discussion of how Warsh thinks a central bank should be run and on efforts to rethink the Fed's practices. "We ultimately have no idea what Chairman Warsh will say, but if we consider his writings and policy statements thus far, a speech on AI, technology, and the supply side would seem to tick a number of boxes," UBS economists said. "He could look back at the historical record, address a big-picture topic, and sound innovative all at the same time."
Overhaul progress: After his first meeting as Fed chair, Warsh announced the formation of five task forces to review and improve the way it conducts monetary policy. "What I'd really like to hear from him is what these task forces have come up with," Kim Escue, a portfolio manager at Shelton Capital Management, told Seeking Alpha. "How is that actually going to work in the context of the Fed if we're expected to look at the data ourselves and have the market determine where interest rates go, yet they've thrown out these changes they want to make?" Warsh has said he's targeting the end of the year for the task forces' final reports. So progress on their findings may be limited so far. Escue doesn't expect Warsh to comment on Treasury Secretary Scott Bessent's plans to boost buybacks of long-term Treasuries as that "might be seen as getting more political."
What is a reaction function?SA commentary: "Investors should
most carefully watch how Warsh talks about yields, especially if he mentions long-term expectations, though I doubt he will," SA analyst Jack Bowman noted. "I expect him to talk about how AI will impact productivity. Bullishness there may impact equity markets, especially if he discusses how the AI boom will affect economic growth." SA analyst Agar Capital will watch for three things: whether current inflation is temporary or persistent, labor market comments, and clarification on the Fed-Treasury relationship. "The Fed is trying to keep inflation under control, while the Treasury is trying to contain the rise in yields. It's like having two people in the same car, where one is trying to brake while the other is simultaneously trying to keep the car from slowing down too much."
Jackson Hole Could End In 3 Ways
