RATINGS: Moody's Defers On Italy Rating

Natixis: “Thus far, Warsh has focused more on potential structural changes to the Fed and has eschewed forward guidance of any kind. He has also touted the “big picture” issues that will shape the long-term trajectory of the economy and, in turn, policymaking. While it’s certainly appropriate to contemplate these lofty, ivory tower issues, investors now are looking for something more grounded - a clearer sense of the Fed's reaction function and reassurance that the central bank has a credible plan for returning inflation to target. We do think he will speak to the “big picture” issues and the Fed’s task forces but will also ultimately give the market some of what it’s looking for as well…. We don’t think Warsh will opine on the timing or magnitude of [productivity] structural shifts, but the implication that we would draw is that Warsh could be reluctant to impose yesterday’s estimates of these relationships on today’s economy. Again, we highly doubt that Warsh will be too declarative in his assessments of what’s to come, but it would not be surprising if he expressed some skepticism about previous policy assumptions and generally struck an anti-doctrinaire approach…. Warsh will likely hone and improve his communication style in the coming meetings and markets will learn to better interpret his particular brand of Fed-speak. In the meantime, we think Warsh and the Fed would benefit from a clear and unambiguous statement that clarifies that if inflation stays high, the Fed will act and the policy rate will be the tool… It would be helpful if Warsh, without front-running the results of the work of the task forces, added some color in terms of the magnitude of the changes that could be coming down the road. We suspect that the task forces will be used to hone and improve the status quo on the margin and not to enact wholesale changes. With this uncertainty present, clarifying that an evolution (not a revolution) is in store, would help to address one of the many outstanding questions about Fed policymaking.”

Scotiabank: “If Warsh does go the route of teeing up future possible moves, then a) it would conflict with his stance against providing explicit forward guidance, but b) would probably lean more toward the neutral-dovish side of expectations… It may also be too soon to begin sharing the work of the five Task Forces that Warsh set up to report back into the Fall and by year-end.”

TD: “We think Warsh's options for the speech largely come down to two key topics: what he calls the "big questions" (structural economic views) and/or regime change at the Fed. We fear the chairman will need to walk a fine line when discussing these topics lest he will be interpreted as dovish by the market… Warsh could frame his Jackson Hole remarks around how he is judging the big structural shifts that are currently transforming the US economy, with artificial intelligence as the big focal point and recent supply shocks as ancillary to that view… Given his known ideological reluctance to even mention the word "guidance", we do not anticipate the chair will change his June/July approach toward discussing the outlook. If the market is looking for a brand new strategy from Chair Warsh toward forward guidance, it will be highly disappointed, in our opinion… The market's reaction function to Warsh is likely to be asymmetric. Additional guidance around his reaction function could allow investors to breathe a mild sigh of relief, but a continuation of current communication policy could disappoint markets further. While Secretary Bessent has attempted to push back against the moves in long-end rates by announcing additional buyback operations, the tone in the long end remains extremely tenuous. Markets will look to Warsh as a potential stabilizer, but we believe the risk of disappointment is high.”

Wells Fargo: “Over about the last decade and a half there have been only two big speeches that we would describe as truly consequential for the near-term policy path (Powell’s “pain” speech in 2022 and Bernanke’s hint at QE3 in 2012). That’s it. Two speeches in the last 14 years. You would think given Warsh’s proclivity to want to say less, not more, this would be another year when little actually happens. And while we tend to lean in that direction as it relates to JH, the one thing that has us wondering a bit more about this than typical is the “clean up” article that occurred in the FT following the last FOMC presser. If Warsh cared enough to bless that (assuming he did), then it may be on his mind that his current approach may need some refining and could decide to address it… we think he will be careful not to get too far ahead of the task forces and commit to any changes. We think he'll also stress that he seeks to keep what's working at the Fed, not just come in and completely upend the place, to warm relations with existing FOMC members and help secure buy-in for the task forces' eventual recommendations. It's certainly possible Warsh touches on recent developments in the Treasury market and the overlay with monetary policy, or more clearly articulate the Committee's near-term reaction function. However, we think the dominant aim of his speech will be to buy the Committee time until the task force findings are released, and hope the data cooperates with the current policy stance over the interim.”

JPMorgan: “Markets will [] be keenly parsing Chair Warsh’s prepared comments (there is no Q&A) for any signs of the Committee’s near-term lean on policy following a mixed bag of developments in the form of hawkish July FOMC minutes, soft post-meeting NFP/CPI prints, and recent gyrations in long-end UST yields… The small number of times that have featured discussions focused on the near-term path for policy likely are particularly salient to market participants, and there have been a few of those speeches more recently. Specifically, the after-effects of the pandemic forced then-Chair Powell to communicate sizable shifts in the Fed’s policy stance: first a commitment to fight inflation in 2022 and 2023, then a more accommodative stance in 2024. With Chair Warsh eschewing forward guidance, this year’s market response could resemble the more muted Greenspan years.”

Mizuho: “There is very rarely a major market moving adverse reaction in the major market proxies (DXY, 2s10s, 10y, SPX) after a Jackson Hole event. The most recent ones that come to mind is 2022, where Powell’s speech on the aggressive fight against inflation sent the S&P down 150pts over a 2-day period. There was no snap reaction for the 10y yield which already increased 31bps from the July lows. DXY also exhibits low changes on an absolute level… our first takeaway is that Warsh is unlikely to give any hints of near-term monetary policy and, if history serves us a guide, market moves will likely be contained. Warsh will more likely talk about structural themes (the task forces) rather than immediate action. That said, our second takeaway is that, on near-term pricing (until year-end), we note that, the risk would be for him to sound slightly hawkish (keeping the 2xhikes in the next 12 months bias alive). This could also add a bit of flattening pressure to the curve and offset the “less-forward-guidance” steepening risk.”

Morgan Stanley: “we believe Fed Chair Kevin Warsh is sincere in his desire to communicate less and we do not expect him to provide anything that would clarify his thinking on the near-term outlook for the economy and monetary policy. While we believe that market movements and the evolution of the data will ultimately push the Chairman into providing more substantive comments than he has so far during his tenure, we do not believe we are at that point yet. We do not believe Chairman Warsh will reverse his policy of talking less following the critical feedback he received after the July FOMC meeting. Instead, we think he reads the criticism as a sign that financial markets and analysts (like us) need to be weaned off of excessive dependence on Fed guidance. Hence, we expect him to stay the course, say less, and diminish the importance of events like Jackson Hole in the Fed's communication apparatus.”

MUFG: “Option 1: Keeps it digital (and disappointing)… Option 2: Balanced speech, macro in passing: don’t think Warsh wants to turn Jackson Hole into a major market moving event, so he may start off covering digital finance topics and pivot toward the end and say, “lastly, let me turn my attention to current events.” He may not present the full Warsh framework for monetary policy but addressing current economic and market conditions could be enough to temper a major market reaction… Option 3: Warsh’s framework revealed: If Warsh “flips the script” and discloses as much as he can at this stage, it would be welcomed and refreshing. Under this scenario, Warsh could still touch on digital payment systems, but then tie it back to why and how he believe his taskforces will help modernize the Fed. He could use the opening remarks to provide an update on how the taskforces are progressing, which data are being emphasized (e.g., trimmed-mean PCE), and maybe an update on balance-sheet views (given that it was mentioned in the minutes).”

Analyst views on what to expect from Fed Chair Warsh's Jackson Hole speech (in alphabetical order of institution):

BMO FICC: “We've heard some speculation that the Chair will use the forum as an opportunity to reestablish any lost credibility from the July 29 meeting. It's a fair point given that some Fed officials interpreted the post-meeting price action as a warning that the Fed must earn its credibility by backing up its words with actions. We don't necessarily think this will be the Chair's approach given that July's NFP/CPI/Retail Sales data made the decision to hold policy rates steady last month appear more prudent. That being said, Jackson Hole poses some hawkish risk because above all, the Committee appears broadly open-minded about the direction of rates moving forward, and policymakers will surely want to retain optionality heading into the September 16 meeting.”

CIBC: “Chairman Warsh has said he intends to use his remarks to frame the big questions, so we don’t expect to hear actual answers to a little question like where policy rates are headed. Markets will be eying how the long bond reacts to amped up buying intentions from the Treasury, but we’ll have Warsh framing the issues around the Fed’s balance sheet, and shrinking its size runs counter to Bessent’s efforts to rein in yields.” 

Deutsche: “One bigger-picture topic that likely requires some additional elucidation is the Fed's task forces… Though Warsh noted that he would be “checking with” the task forces between the July meeting and Jackson Hole, it is likely too early for indications about progress being made… Aside from the task forces, the most obvious topic for a “big picture” speech is AI’s impact on the economy. This is also an area where his comments could have implications for the near-term policy outlook… Given his preference for eschewing forward guidance and providing little to no information about his or the broader Committee’s reaction function to incoming data, it is difficult to predict what such a speech would look like. Nonetheless, we expect a few elements could be present. First is a “cleanup” of the July FOMC press conference… Warsh may wish to counter one market narrative that any Fed policy actions could be delayed until the task forces have completed their work. …Second is a broad description of how officials are viewing inflation dynamics, given that this is the primary driver of policy decisions in the near term.. Warsh could reference the two scenarios detailed in the minutes to the June FOMC meeting, namely one in which inflation “soon” dissipates and another in which inflation remains elevated… Third, how the Committee views the implications of evolving financial conditions and recent volatility in long-term interest rates for monetary policy.”

Goldman Sachs: “We 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. He is likely to acknowledge the better recent inflation news but is unlikely to provide policy guidance… We suspect that other Fed officials at the event will be more open about their policy views. While most of the minority of participants who supported a hike in July are likely to still support one, we think that the majority of participants and especially the majority of voters will feel even more strongly that it is appropriate to remain on hold after better inflation reports in June and July.”

ING: “Warsh’s speech will be in focus given the criticism he faced following his July FOMC press conference, with markets looking for more clarity on the Fed’s reaction function.”