TD Securities strategists argue that Kevin Warsh’s Jackson Hole speech will focus on structural themes such as productivity, AI-driven growth and Federal Reserve (Fed) regime change. They expect rate expectations to stay anchored, with US Dollar (USD) price action driven more by volatility and perceptions of inflation credibility than by new forward guidance.
Dollar seen volatility-prone on Warsh
“USD risks are skewed modestly to the downside. Any hawkish clarification on inflation credibility may provide only limited USD support. Alternatively, failure to address inflation credibility could weigh more materially on the dollar.”
“Warsh’s speech will likely focus on broader structural themes such as productivity, AI-driven growth, supply-side dynamics, and longer-term institutional reforms at the Fed. The immediate implication for FX is that rate expectations will remain relatively anchored, limiting the scope for a sustained directional move in the USD.”
“From an FX perspective, the most likely outcome is that Jackson Hole generates more volatility than trend. A speech centered on structural economic themes and Fed regime change would likely leave markets searching for policy clues that are not there. In that environment, the dollar may struggle to establish a sustained direction unless Warsh delivers a clear message on inflation credibility.”
“The asymmetry, however, may lean modestly USD-negative. Markets appear more concerned about the absence of a hawkish reaffirmation of the Fed’s inflation mandate, especially after recent Warsh appearances led investors to price out expectations of further Fed hikes despite lingering concerns about elevated inflation. As a result, any effort by Warsh to “clear the air” around inflation credibility is likely to provide only modest support for the dollar.”
“By contrast, any failure to address concerns around the credibility of the Fed’s inflation-targeting framework could continue to weigh more heavily on the USD.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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