The chairman’s speech

In about three and a half hours, Fed Chair Kevin Warsh gives his first Jackson Hole keynote, and the stakes are unusually high for a “first speech.” Three months into the job, he’s broken from tradition by refusing to spoon-feed markets forward guidance. That’s bought him some independence optics, but it’s also left investors and even some of his own colleagues thirsty for a real framework. Core PCE is running at 3.3%, well above target, and the Fed hasn’t hit its 2% goal in six years running. So what can he credibly say today? Let’s speculate: (1) Frame the questions, not the answers. Warsh has said he wants to use Jackson Hole to “frame the big questions” facing the Fed, not announce a policy shift. That’s a lower bar than markets want, but it’s the safest one for a new chair still building credibility.(2) Address the inflation debate directly. Is the recent reacceleration transitory, or does it justify a hike? He can’t dodge this without looking evasive, but he also can’t commit without boxing in the September meeting.(3) Signal independence, carefully. With pressure from the White House for cuts and criticism (including from Sen. Warren) that he’s been too quiet on tariffs and the political economy, today’s speech is his chance to show whose interests the Fed actually serves. (4) Stay vague on rates. No FOMC action happens at Jackson Hole, the real decision comes Sept. 15-16. Expect him to preserve optionality rather than pre-commit. In the meantime, the odds for a hike in September are less than 40%, as you can see in the chart below. We don’t know if Warsh wants to surprise the market, but in the Powell/Yellen days, this was a clear indication the Fed was not going to take action.

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