Kevin Warsh Faces First Jackson Hole Test With Markets Split on September Hike

Kevin Warsh is preparing to deliver his first Jackson Hole speech as Federal Reserve (Fed) Chair on Friday, and expectations extend well beyond whether interest rates will be raised or left unchanged in September.

The Jackson Hole symposium, held from August 27 to 29, has the official theme "Financial Innovation: Implications for Payments and Policy." However, investors are likely to pay much closer attention to what Warsh says, or does not say, about inflation, interest rates, and the recent heightened volatility in the US bond market.

Since taking over at the Fed in May, Warsh has sought to reduce markets' dependence on forward guidance. His objective is to allow economic data and markets to play a greater role in shaping interest-rate expectations rather than speeches from policymakers.

This strategy, however, comes at a cost: Investors struggle to understand precisely how the new Fed's reaction function works. Jackson Hole could therefore become less about the next rate hike and more about Warsh's credibility.

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