The Fed Chairman Kevin Warsh will address the Jackson Hall annual meeting on Friday. It was the first time he had taken office, 19 days away from the September conference, and the market was trying to move from it to the US interest rate.
The market starts with words.
According to the report, investors do not expect Warsh to provide a direct indication of interest rate reductions or increases in September. More attention is being paid to how he will evaluate inflation, economic growth and the financial environment, and what changes will drive the Fed to move towards more liberal or tighter policies.
Warsh has in the past given less clear forward-looking guidance, so the emphasis in this statement on which conditions may be more important than specific projections. A United States bank survey showed that 69 per cent of the fund managers expected him to maintain a neutral position, which also meant that the market response might be more visible if the wording deviated from expectations.
Inflation remains the focus
Inflation remains the main focus of this speech. The market wishes to confirm whether Warsh will see higher interest rates as an optional tool if price pressures are slow to return to near the Fed's 2% target.
In an interview with Bloomberg, Jack Manley stated that Warsh probably would not send a clear signal about the September meeting, but might put more emphasis on the weight of inflation in policy decisions. At the same time, if he put more emphasis on the economic slowdown or the weakness of the job market, the market's expectations of interest rates could rise.
Long-term United States debt yield pressure
In addition to inflation, the United States Treasury debt market was an important backdrop to this speech. Annual rates of return on United States debt are close to high since 2007, and the recent purchases of long-term national debt by the United States Treasury have not kept the long-term return down.
It was also mentioned that there was not complete agreement within the Federal Reserve on policy prospects, and that the last meeting had even seen a stronger hawk opposition in recent years. Markets are therefore concerned about how Warsh views high long-term rates of return: whether it is perceived as a natural tightening of financial conditions or as a new pressure on the economy.
Assets or fluctuations such as bitcoin
The market is currently preparing for three outcomes: dove, eagle or neutral. If speech is biased and interest rate declines are expected to heat up, risk assets such as stocks, gold and bitcoins are expected to be supported; if hawks, they may strengthen “high interest rates for longer” judgement and suppress risk preferences.
If the overall tone remains neutral, markets may continue to wait for more economic data before the September meeting, and fluctuations may not come down very quickly. It was also mentioned that this year's Jackson Hall annual conference could also address the topic of financial innovation, stabilizing currency and encrypted assets or being brought into the discussion.