Kevin Warsh at Jackson Hole: What Smart People in Markets Are Saying

Mohamed El-Erian, famed economist and former co-CIO of PIMCO, said Warsh’s speech was clear, powerful, and met high expectation for his Jackson Hole debut.

“His remarks address directly and effectively the loud calls from some market participants and economists for his views on the current state of the economy, the balance of risks to the Fed’s dual mandate, and his commitment to the inflation target,” El-Erian wrote on X.

He also agrees with Warsh’s take on re-evaluating forward guidance and modernizing the Fed’s approach to monetary policy. But, for El-Erian, the most interesting part of Warsh’s speech was his AI optimism and framing of the technology as a “new factor of production.”

Kevin Warsh may not have delivered on what some investors were hoping for, Joseph Brusuelas, the chief economist at RSM, wrote in a post on X Friday morning. He pointed to how the Fed Chair largely stuck to the same ideas in his remarks following the past two Fed meetings, such as Warsh’s stance on the Fed refraining from forward guidance.

“Warsh largely dug in his heels & did not deviate from his first two speeches,” Brusuelas said. “Other than implying he will lift rates if inflation moves higher market participants will largely find it unsatisfying.”

Brusuelas said questions about a possible Fed-Treasury accord and the implications on Fed independence should be examined. His comments come shortly after the US Treasury stepped in to quell calamity in the bond market by increasing its purchases of long-dated US Treasury bonds.

Though Warsh asked markets participants not to interpret his remarks as “forward guidance,” the Fed Chair laid out a comprehensive framework that suggested the central bank is committed to getting inflation back down to 2%, Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, wrote on Friday.

Boockvar pointed to the rise in short-term Treasury yields as Warsh spoke. The 2-year US Treasury yield jumped nearly 10 basis points by mid-morning.

“I believe he did a very good job of laying out a pathway, a framework, a playbook and the rules of his road on what he’s watching out for,” Boockvar wrote on Substack.

Warsh’s remarks at Jackson Hole appeared “successful in reestablishing confidence” in the Fed’s 2% inflation mandate, Larry Holzenthaler, senior portfolio manager at Catalyst Funds, wrote after Warsh’s remarks.

He pointed to the rise in short-term government bond yields and drop in long-term yields, a sign that investors are discounting the possibility that inflation will be a pervasive problem in the future, which would raise long-term rates. The 30-year US Treasury yield, which recently touched its highest level since 2007, slid 2 basis points on Friday.

“The market seems to be reacting exactly the way the Fed wants,” Holzenthaler wrote. “Investors should clearly expect that the Fed is going to raise rates if it needs to.”

Prajakta Bhide, an economist and US strategist at The Macro Research Board, said that Warsh’s comments indicate he no longer regards the recent bond market sell-off as a substitute for meaningful Fed action.

“Seems Warsh got the memo at Jackson Hole,” she wrote on X. ” The way to tamp down the rise in long term interest rates was to signal a willingness to raise short term rates.”

A focus of Warsh’s speech was his reiteration that the Fed would no longer give forward guidance for its policy decisions, arguing that it can box central bankers in and slow their response to new developments in economic data.

It’s something that Warsh emphasized at his first FOMC meeting as Fed Chair earlier this year, but his speech on Friday officially put a stamp on a new paradigm for monetary policy, said Jeffrey Roach, the chief economist at LPL Financial.

“We are entering a new era of monetary policy, one defined by less signaling, greater emphasis on real-time data, and a willingness to rethink economic first principles as AI reshapes the economy’s productive capacity,” Roach said.