Federal Reserve: Market Watches for Warsh Signals - Rabobank

Federal Reserve Chairman Warsh is set to deliver the keynote speech at the Jackson Hole global central bank symposium, and the market is holding its breath. Bas van Geffen, senior macro strategist at Rabobank, noted that given Warsh's historical aversion to forward guidance, he may avoid releasing clear policy signals this time. The timing of this statement coincides with elevated U.S. Treasury yields and pressure on the U.S. dollar, making this speech a key variable influencing market direction.

**Neutral Tone Becomes Mainstream Expectation**

Market expectations for the tone of Warsh's speech are broadly neutral overall. Wang Jinbin, professor at Renmin University of China, analyzed that against the complex backdrop of inflation still above target but slowing economic growth, Warsh may adopt a relatively neutral stance and will not provide clear guidance on the future monetary policy path. This assessment aligns with institutional surveys, according to Bank of America's mid-August fund manager survey, approximately 69% of respondents expect Warsh to deliver a neutral-toned speech. Former senior Federal Reserve economist Hu Jie also emphasized that the Fed should exercise restraint and cannot sacrifice the inflation target to lower government financing costs.

**Market Risks Under the Silence Strategy**

Since taking office, Warsh has rarely publicly commented on the monetary policy outlook, and this silence strategy is now raising concerns among some Wall Street institutions. Michael Feroli, chief U.S. economist at JPMorgan, warned that if Warsh continues to remain silent, he may cede the Fed's communication leadership to other policymakers. Lou Crandall, chief economist at Wrightson ICAP, stated bluntly thatthe market does not need absolute certainty, but it must have a baseline level of clarity, otherwise various speculations will run rampant

**Bond Market and Dollar Face Key Test**

Despite expectations of a neutral tone, market fragility amplifies the potential impact of the speech. Bank of America's strategist team warned in an August 24 report that if Warsh fails to clearly articulate the inflation outlook and the monetary policy reaction function, the 30-year U.S. Treasury yield could quickly test 5.5% or higher levels. Barclays economists also noted in an August 21 report thatthe market will closely watch whether Warsh explicitly states—that if inflation fails to improve, the Fed is willing to resume rate hikes, and they estimate the probability of him making such a statement exceeds 50%. Bai Xue, senior deputy director of the research and development department at Golden Credit Rating, analyzed that a hawkish signal would push up long-end U.S. Treasury yields, while a dovish signal would push yields down through rate cut expectations.