Kevin Warsh delivers his first Jackson Hole keynote as Federal Reserve chair this morning, roughly 10:00 a.m. Eastern, three months after taking office on 22 May. The official theme of the symposium is financial innovation. Nobody is flying to Wyoming for the theme. Markets want to know one thing: whether the next move in the federal funds rate is up.
The pricing is blunt. Traders put the odds of a quarter-point hike at the 15 and 16 September FOMC near one in three. The target range has sat at 3.50% to 3.75% since December, held again on 29 July in a 9 to 3 vote, with Beth Hammack, Neel Kashkari, and Lorie Logan dissenting for an immediate increase. In a CNBC interview this month, Warsh said he does not know what current policy is restricting, and called inflation "still stubborn and it's still sticky." That is not the vocabulary of a chair preparing a cut.
The data he carries to the podium
Wednesday's July core PCE print, the Fed's named inflation gauge, held at 3.3% on the year, with headline PCE at 3.7%. It is the last reading of that gauge the September meeting will see, because the next release lands on 30 September, two weeks after the vote. The committee does get August CPI on 11 September, and the two gauges currently disagree by roughly 86 basis points, with core CPI at 2.48%. Warsh has also stripped forward guidance out of Fed communication since taking office: post-meeting statements run about half their prior length, and he has declined to submit his own projection to the dot plot. Every phrase today will be traded within seconds, because markets are still assembling a working glossary of his vocabulary. For background, see our symposium preview.
The Treasury complication
Warsh speaks into an unusual tension. With U.S. national debt past $40 trillion, Treasury Secretary Scott Bessent is already intervening in the bond market, at least doubling buybacks of 10 to 30-year paper from $2 billion to $4 billion per operation to hold long-term yields down. Yields rose back above pre-announcement levels within days, and Bessent has said Treasury stands ready with much higher amounts. The two-year note yielded 4.17% at Monday's close, well above the 3.625% midpoint of the policy range, a gap that says investors price more restriction than the committee has delivered. Warsh has so far urged policy neutrality, letting market reactions do part of the tightening work rather than aligning the Fed with the Treasury's effort.
Crypto markets have traded the build-up as a risk-on week, with Bitcoin breaking $80,000 into the speech. A hawkish surprise at 10:00 a.m. is the kind of catalyst that unwinds leveraged rallies fast. The Kansas City Fed livestreams the address and posts the prepared text at the same time.