Federal Reserve Chair Kevin Warsh is set to deliver the first keynote speech of his chairmanship at the annual Jackson Hole Economic Policy Symposium on Friday amid uncertainty over stubborn inflation.
Policymakers from the Fed and various central banks around the world will gather in Jackson Hole, Wyoming, to discuss monetary policy and the economy, with Warsh delivering his widely anticipated speech on Friday morning.
Warsh, who was confirmed as Fed chair in May and has since led his first two monetary policy meetings, has taken steps to end the use of forward guidance about future policy moves, including the removal of forward-looking comments from post-meeting statements and having a panel review Fed communications.
Given his reluctance to engage in forward guidance, Warsh’s speech will be closely watched for any signals that may offer insights into how his leadership will impact the Federal Reserve’s operations and how policymakers approach interest rate decisions.
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Gregory Daco, chief economist at EY-Parthenon, told FOX Business that there’s a “tremendous degree of uncertainty as to what he will or won’t say” in his first Jackson Hole speech.
“I think there is tremendous appetite, at the same time, for him to clarify some of his views, come back down to earth when it comes to his communication around economic data, around inflation, around employment and around policy,” Daco added.
He said Warsh could provide “some sort of framework guidance that would help assuage market fears that he’s completely detached from traditional policymaking, and that he’s not necessarily looking at economic data as the right levers to be conducting monetary policy.”
Daco pointed to developments in the bond market, where yields are near recent highs, as showing a desire for more guidance because “part of the recent rise in yields has been tied to this lack of credibility around policymaking at the Fed, and in particular, a lack of transparency from the Fed chair.”
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Daco noted that while Warsh has said the Fed will deliver 2% inflation amid above-target readings, he also said at the most recent press conference after the Federal Open Market Committee (FOMC) left rates unchanged that he sees this as a period of “watchful thinking” and observing data to assess inflation’s impact.
Additionally, he pointed to Warsh’s comments in June that markets and Treasury yields were signaling investors were convinced inflation was coming down, and then in July he said the higher yields were contributing to the Fed’s tighter policy.
“You can’t have both, right? If you want a pure signal from markets, you have to be honest about what markets are signaling, and I think that hasn’t occurred so far,” Daco said.
At the FOMC’s most recent meeting in July, policymakers left the benchmark federal funds rate unchanged at a range of 3.5% to 3.75%, following a 9-3 vote with a trio of dissenters voting in favor of a 25-basis-point rate hike amid elevated inflation.
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Inflation data has remained stubbornly high, with the Fed’s preferred gauge – the personal consumption expenditures (PCE) index – remaining at 3.7% year over year for the headline figure in July, while core PCE, which excludes volatile food and energy prices, was also flat at 3.3%.
Both figures are well above the Fed’s 2% inflation target, which has led the market to see a 25-basis-point hike before the end of the year as the likeliest outcome. The CME FedWatch tool shows a 45% chance of a hike by the FOMC’s December meeting, compared to a 27.3% chance of rates holding steady through the end of the year.
Daco said that his firm continues to think the Fed will remain on hold for the rest of the year, saying that policymakers are likely to remain cautious but won’t necessarily favor hiking rates in the next few meetings.
He added that in keeping with Warsh’s aversion to forward guidance, he’s likely to avoid boxing himself into an interest rate move with his remarks during his Friday keynote speech in Wyoming.
“I doubt he’s going to want to confirm in any way, shape or form any future action. He’s going to talk about a good policy fight at the FOMC table, and he’s not going to want to essentially corner himself into any particular decision when it comes to September,” Daco said.
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