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All eyes are on a mountain valley in Wyoming today, as central bankers and economists gather close to Yellowstone national park for a top-level symposium.
Inflation, and the bond market, is top of the agenda at the annual Federal Reserve symposium at Jackson Hole this year, as the Iran war puts pressure on the global economy.
Jackson Hole has been dubbed the Davos for central bankers, and today the financial markets are bracing for a speech from the world’s most powerful central bank chief, Kevin Warsh, at 3pm UK time (10am Eastern).
Warsh is under pressure to provide clarity on how the Federal Reserve, which he leads, should deal with inflation if price pressures don’t abate. Last month he created uncertainty by suggesting that the markets, not the Fed, should take the lead on tightening financial conditions.
But investors also hope to hear Warsh’s view on the recent interference in the bond markets by Treasury secretary Scott Bessent, who has been trying to push down US long-term borrowing costs by buying long-dated bonds.
Besssent’s move appears to put the Treasury on a collision course with the Fed - lower borrowing costs will spice up the economy, undermining the battle against inflation.
Ipek Ozkardeskaya, senior analyst at Swissquote, says the stakes are high for Warsh’s speech, for three reasons:
It will be Kevin Warsh’s first as Fed Chair, at a time when inflation remains stubbornly above target and long-term yields have been under pressure.
Kevin Warsh is trying to change the way the Fed functions and communicates its policy to the market (or whether it communicates at all!).
Investors are questioning, since Treasury announced last week that it would increase its longer-term bond buybacks to tame borrowing costs, how the Fed will respond to the Treasury’s intervention in the bond market, which – if successful – could interfere with the Fed’s policy path and the transmission of its policy to the economy.
Last month, Warsh said he wanted his speech to focus on important points such as AI and productivity, demographic changes, and the global economy’s response to shocks from the Iran war. So we shall see!
The agenda
10am: Eurozone inflation report for August
1.30pm: Canadian GDP for the second quarter
3pm UK (10am EDT: Fed chairman Kevin Warsh delivers the keynote address at Jackson Hole Economic Policy Symposium in the US
3pm: University of Michigan consumer sentiment index
