Walsh Jackson Hall premiere, Market Focus Policy Positions, Framework Reforms and Treasury Coordination

ON 28 AUGUST, THE MARKET FOCUSED ITS FIRST ADDRESS TO FEDERAL RESERVE CHAIRMAN WALSH JACKSON HOLE ON THREE MAIN POINTS, COMBINING MORGAN STANLEY, MORGAN CHASE, SILVER, BARCLAY AND GOLDMAN SACHS. THE PRIMARY SUSPENSE WAS WHETHER WALSH BELONGED TO A CLEARLY DEFINED OR NEUTRAL HAWK, AND WHAT LEVEL OF INFLATION WOULD TRIGGER ITS SUPPORT FOR INTEREST RATE HIKES, AND THE MARKET WAS STILL UNCLEAR ABOUT ITS POLICY RESPONSE FUNCTION. THE SECOND CONCERN IS WHETHER WALSH WILL ADJUST THE FED POLICY FRAMEWORK, INCLUDING THE INFLATION FRAMEWORK, THE BALANCE SHEET, FORWARD GUIDANCE, THE IMPACT OF AI ON PRODUCTIVITY AND THE QUALITY OF ECONOMIC DATA. MORGAN STANLEY BELIEVES THAT THESE LONG-TERM ISSUES MAY BE MORE IMPORTANT THAN THE 25 BASIS POINTS RAISED IN SEPTEMBER. THE THIRD CONCERN WAS HOW WALSH DEALT WITH THE POTENTIAL POLICY CONTRADICTION BETWEEN THE FED AND THE TREASURY. THE UNITED STATES TREASURY IS EXPANDING ITS LONG-TERM US DEBT BUY-BACK, HOPING TO REDUCE LONG-TERM FINANCING COSTS; IF THE FED MAINTAINS HIGH INTEREST RATES TO CONTROL INFLATION, IT MAY KEEP THE LONG-TERM YIELD HIGH. THE PRESENTATION COULD BE AN OPPORTUNITY FOR WALSH TO ELABORATE ON THE MODALITIES OF COORDINATION BETWEEN THE TWO SIDES. KIM XIAN