Fed Chair Kevin Warsh delivers his first Jackson Hole keynote Friday as inflation runs hot and the 30-year Treasury yield sits at its highest level since 2007. Here is what is on the line, and what to watch ahead of the Fed's September 16 rate decision.
Federal Reserve Chairman Kevin Warsh steps to the podium in Jackson Hole, Wyoming, on Friday for the first keynote address of his tenure as the nation's top central banker, and financial markets are hanging on every word. The speech comes with inflation running well above the Fed's 2 percent target, long-term Treasury yields at their highest level in nearly two decades, and real debate inside the central bank over whether the next move in interest rates could actually be a hike.
Warsh, who took office May 22 as the 17th chairman of the Federal Reserve, has held the benchmark federal funds rate steady at 3.50 percent to 3.75 percent at his first two policy meetings. His appearance at the Kansas City Fed's annual economic symposium is the first set-piece moment markets have had to hear the new chairman explain how he thinks -- not just what a divided committee decided.
Jackson Hole has been the center of the central-banking calendar since 1982, when organizers recruited Paul Volcker, an avid fly fisherman, to headline a conference that started four years earlier as a workshop on agricultural economics. Roughly 120 central bankers, finance officials and academic economists from more than 70 countries gather at Jackson Lake Lodge in Moran, Wyoming, each August.
This year's three-day symposium runs through Saturday under the theme of financial innovation and what it means for payments and policy. But the news event is the chairman's keynote, which is livestreamed with the full text published as he begins speaking at 10 a.m. Eastern.
Warsh is no stranger to the institution. He served on the Federal Reserve Board of Governors from 2006 to 2011, worked in the White House and on Wall Street, and built a reputation as one of the country's most forceful voices on inflation during his years in public life. Nominated by President Donald Trump in January and confirmed by the Senate in a 54-45 vote in May, he replaced Jerome Powell after a transition investors had watched for months.
The backdrop for Friday's speech is an inflation picture that refuses to fully clear. Prices climbed 3.7 percent over the 12 months ending in July by the personal consumption expenditures price index (PCE), the Fed's preferred inflation gauge. That is down from a 4.1 percent reading in May but still nearly double the central bank's 2 percent goal.
Those numbers explain why futures markets now price roughly a one-in-three chance that the Fed actually raises rates when it meets again September 16. A handful of Warsh's colleagues on the Federal Open Market Committee (FOMC) have already begun calling for higher borrowing costs -- which would be the first hike since July 2023 -- and fresh August data due in the coming weeks could strengthen their case.
Warsh has promised to bring prices under control, and he has deliberately stopped the practice of spoon-feeding Wall Street clues about the next move. Investors were disappointed last month when the new chairman pledged to curb inflation but offered few specifics about how. Friday is his chance to change that.
The stakes were raised two weeks ago when the 30-year Treasury yield closed at 5.31 percent on August 17, its highest level since 2007. That rate sets the tone for mortgage costs and long-term corporate borrowing, and the run-up has put the government's borrowing costs squarely in the spotlight.
The Treasury Department stepped in on August 19, announcing it would double the size of its buybacks of long-dated government bonds -- an operation aimed at improving trading conditions at the far end of the market. Yields fell on the announcement, and the move reset expectations about how aggressively the administration is working to bring long-term borrowing costs down.
The Fed cannot lower long-term rates directly; its policy lever is the short-term rate. But a chairman who sounds credible on inflation can influence what lenders demand for thirty-year money, which is why Friday's speech matters far beyond the conference room at Jackson Lake Lodge.
Warsh has kept his cards close. "I look at it like a blank piece of paper right now," he told reporters last month. "I haven't made a decision whether it's going to be a big-picture speech or more of a set-up of all the action that we're going to have between September and December."
He has signaled he wants to use the setting to frame bigger questions. "What's really happening with productivity? What's really happening with demographics? What's really happening to the global economy amid the shocks?" he asked after the Fed's most recent meeting.
Economists will be listening for how much airtime he gives inflation versus a labor market that has begun to soften, whether he addresses the government's borrowing costs at all, and whether he drops any hint about the September 16 decision. History shows the keynote can move markets: Powell's 2022 warning that beating inflation would bring "some pain" cost the S&P 500 more than 3 percent in a single session, while his 2024 signal that "the time has come for policy to adjust" sent stocks higher ahead of a September cut.
Warsh is also wrestling with the strange economics of artificial intelligence. He is bullish that the AI boom will eventually lift productivity and push prices down over the medium term, but in the near term the buildout is showing up as an inflationary force, driving up costs for construction crews and computer memory chips.
Whatever Warsh says Friday, the next concrete decision arrives September 16, when the FOMC must choose between holding steady, cutting, or raising rates for the first time in more than three years. Investors see a hold as the base case, with the hike scenario alive if inflation data keep running hot.
For American families, the stakes are straightforward: rates stay higher for longer if the Fed has to keep fighting inflation, while a credible path back to 2 percent would eventually ease pressure on mortgages, car loans and credit card debt. The administration is doing its part on the long end of the curve, with the Treasury's expanded buyback program working to calm the bond market.
Warsh has made clear he wants the Fed judged on results, not promises. Friday in Wyoming is the first big chance for him to lay out the case for how he plans to deliver.
Fed Chair Kevin Warsh delivers his first Jackson Hole keynote Friday as inflation runs hot and the 30-year Treasury yield sits at its highest level since 2007. Here is what is on the line, and what to watch ahead of the Fed's September 16 rate decision.
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