Warsh's speech at Jackson Hole: Investors are calm, but still remember the Powell turmoil of 2022
Fed Chair Kevin Warsh is set to speak at the Jackson Hole conference. Investors are looking for clues on future monetary policy, though markets remain calm with the VIX volatility index trading below its annual average.
The new Federal Reserve Chairman, Kevin Warsh, will speak today (17:00 Israel time) at the central bankers' conference in Jackson Hole, USA. Investors will be looking for clues regarding the future policy of the American central bank.
However, Bloomberg notes that, with few exceptions, the Fed Chair's speech at Jackson Hole does not cause significant movement in the stock market. According to Bloomberg data, since 2000, the S&P 500 index has risen by only 0.4% on average in the week following the meeting. Furthermore, futures are not pricing in unusual fluctuations this time.
Warsh has been criticized for his refusal to clearly define his "reaction function" — the economic circumstances under which the Federal Reserve will make changes to the interest rate — and investors see today's speech as his best opportunity to do so. Prediction markets indicate a probability of about 40% for an interest rate hike at the next Fed meeting on September 15-16.
Warsh took office as Fed Chair in May, and since then has managed only one interest rate meeting, in July, where it remained unchanged in the target range of 3.5% to 3.75%. During this period, he refrained from providing forward guidance, leaving the task to the markets.
"The bar is low, with traders not expecting breakthrough changes in his policy stances," Kevin Flanagan of asset management firm WisdomTree told Bloomberg. "But the fact that Warsh has stopped providing forward guidance regarding interest rate policy still leaves room for the risk of misinterpretation on Wall Street."
Although the chance of drama at Jackson Hole is relatively low, it has happened before. In 2022, then-Fed Chair Jerome Powell surprised the market with a hawkish speech, warning that the fight against inflation would cause "pain" to households and businesses. The S&P 500 index plunged 3.4% that day, leading to weeks of selling.
For now, the markets seem calm: the "fear index" VIX is trading below 15 points — about 20% less than its annual average. Additionally, the S&P 500 has recorded 21 consecutive trading days without a decline of at least 1%.
"Warsh's main motivation is not to provide forward-looking statements regarding monetary policy, so it seems he will not go in that direction," Jed Ellerbrook, a portfolio manager at Argent Capital Management, told Bloomberg. "The effects of tariffs on inflation are gradually decreasing. The conflict in the Middle East and its impact on oil prices are volatile, but some relief is evident. This means that the new Fed Chair's speech at Jackson Hole will provide only minimal news for investors."
