Update (1000ET): The speech was hawkish in substance (see full remarks below) - Warsh framed inflation as the clear priority, said financial conditions are not restrictive, and set a high bar (“confident that underlying inflation is moving to our objective, clearly and at sufficient speed”) - while refusing to pre-commit to a September hike.Rate-hike odds are rising rapidly...Polymarket odds of a September hike are surging...
But the market remains confused... or just cherry-picking what it wants to hear...Gold down on Warsh hawkish comments Bonds, bitcoin flat on Warsh neutral comments Stocks jump to HOD on Warsh dovish comments — zerohedge (@zerohedge) August 28, 2026But one thing they are sure about is the yield curve which is flattening dramatically, erasing all of the post-FOMC steepening...
With Warsh tilting hawkish at the short-end, and Bessent with his thumb on the long-end scale, it's no real surprise.Key pointsAI and the longer-term outlookWarsh called AI a “hinge point” with potential for substantially higher growth, citing exploding token sales and a “hyper-Moore’s law.”Fed Chair Kevin Warsh said during his speech in Jackson Hole today that we've come to a hinge point in history thanks to AI.
I think he is right. The economic setup has changed in a material way. AI progress is running ahead of even the optimistic case from two years ago, and… pic.
twitter.com/yZo7QoYg1o — Patrick F. Feeley (@PFFeeley) August 28, 2026He posed open questions on productivity timing, whether AI complements or substitutes for labor, capital intensity, and how surplus will be distributed.
A productivity-and-jobs task force is working on this; its findings will not affect current policy decisions.Forward guidance and marketsHe restated his opposition to regular forward guidance, calling it a crisis-era tool that has “overstayed its welcome.”He warned of a “hall-of-mirrors” problem in which the Fed and markets feed off each other and miss turning points.
He rejected publishing an explicit reaction function or mechanical rule, arguing the economy is too uncertain and that 2021-style guidance delayed the response to inflation.Markets should form their own views from real data; the Fed should not be the primary source of the next trade.Seven principlesUse contemporaneous, accurate data and trends - not stale or isolated prints.
Supply/demand balance can only be inferred, not observed directly.The 2% PCE target is firm and fixed; inflation is not automatically mean-reverting.The dual mandate is not a trade-off; high inflation itself damages employment and prosperity.
The policy rate is the main tool; unconventional tools belong only in genuine crises.“Money matters” - watch the monetary base and bank-created money.A quieter, more purposeful Fed is more accountable.
Current economyOutput and labor are solid: capex strong (much of it AI-related), profits up ~20%, credit spreads tight, lending standards easy, PDFP running near 3%, unemployment 4.1% and claims very low. He described this as consistent with full employment and said broad financial conditions are not restrictive.
Inflation is the problem: 12-month PCE at 3.7%, 6-month at 4.1%.
Roughly half of PCE components are still rising more than 3%. Summer readings were better than expected but “do not tell me that underlying trends have meaningfully improved.”Medium-term inflation expectations remain well-anchored, which he credited to the institution—but he warned they can look durable “until they don’t.
”He took institutional ownership: “The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank.”His standard for action: policymakers must be confident inflation is heading to 2% clearly and fast enough. Otherwise “we have work to do.
”Bottom LineHe closed by saying he is “committed to a discipline, not to a decision.”That is consistent with his no-forward-guidance stance, but the economic diagnosis (strong demand, easy financial conditions, sticky and still-broad inflation) tilts toward keeping the option of a hike firmly on the table.Finally, in case you were wondering, Warsh - who prefers a quieter Fed - spoke the most amount of words in his speech since Yellen in 2017...
Perhaps he just wanted to get all the words out now and then go silent? So the average word count over his tenure is lower?* * *Nothingburger or market upheaval?
Fed Chair Kevin Warsh will deliver his first keynote address at the Kansas City Fed’s Jackson Hole Economic Policy Symposium this morning.As we highlighted in our extensive preview, Warsh noted at the July FOMC meeting that his remarks could go in one of two directions: a “big-picture speech” or a “more traditional set up for all the action we’re going to have between September and December.”How much will Kevin Warsh say in Jackson Hole today?
That's the question on investors' minds.Goldman Sachs economists expect Warsh to reiterate his commitment to the 2% inflation target, expand on the rationale behind his approach to Fed communication, and offer thoughts on some bigger picture topics such as productivity growth or shocks to the global economy that he alluded to at his last press conference (full note here).He is likely to acknowledge the better recent inflation news but is unlikely to provide policy guidance.
Markets are looking for Warsh to clarify what combination of inflation, labor and financial conditions would cause him to recommend a change to policy, and whether the policy rate is his primary tool.A notable lack of guidance at July’s FOMC press conference, after a more hawkish tone in June and during congressional testimonies, caught markets off guard and was ultimately a credibility-negative signal.Goldman's Rich Privorotsky calls the setup: “awkward when you committed to not giving forward guidance.
”His modal view is “nothing done.”But warns the market of the possibility that Warsh waivers and tries: “a left tail of a more tough on inflation message that helps bring credibility back.” That left tail only flattens the curve, he adds, if it arrives with Treasury increasing buybacks.
Goldman's George Cole is less polite about the politics. Warsh, Cole says, seemed to endorse the July story that higher long-end yields meant the market was “finally standing on its own feet” after years of central-bank repression. Then Scott Bessent told that same market it had the price wrong.
Cole’s line: “Philosophically, you can't claim to want an unpolluted read of market pricing while bullying that same market.”So he would be “surprised if he re-runs the July script and celebrates the move higher in long-end yields.” What traders and Fed-watchers want instead is “vol-reducing: marginally hawkish near term, but fundamentally calming.
”Warsh’s Jackson Hole speech provides a timely opportunity for the Fed’s new leader to clarify his vision for the central bank, either through a “big picture” talk focused on the task forces or through a policy-relevant discourse that cleans up some missteps in recent communications and presents scenarios for the outlook. Given his overall inclination to provide limited information about the policy outlook, his comments will most likely skew to the former, though markets will be attentive to any additional signals on the latter.Translation: say the funds rate is the tool, say the data looks fine, sound a little more like June on 2%.
Do not celebrate the selloff. Also do not rule out that Warsh “may just deliver a speech on international payments and financial innovation and say nothing on policy at all.”Reminder, there is no Q&A after the speech.
Watch Warsh live here (due to start at 10amET):Full Prepared Remarks...Thank you. It's great to be here again and to see so many familiar faces.
I've been looking forward to this weekend—what better place to mark my 100th day as Chairman?For the fine hospitality, everyone here is in debt to President Jeff Schmid and his colleagues at the Federal Reserve Bank of Kansas City. Jeff, our thanks