Countdown to Walsh’s Debut at Jackson Hole: Fed Guidance Remains Unclear, Long-term US Treasuries Face Further Sell-off Risk

According to Zhitong Finance APP, on August 28, Federal Reserve Chairman Kevin Walsh will deliver his first keynote speech since taking office at the annual Global Central Bank Meeting in Jackson Hole, Wyoming. This is not just the keynote address of an annual policy seminar—it is considered by Wall Street as the most crucial opportunity for Walsh to restore the credibility of the Fed.

Since taking office in May, Walsh has adhered to the doctrine of a "quieter Fed," deliberately avoiding forward guidance, shortening policy statements, and being vague during two press conferences. The market interpreted this as a lack of determination to fight inflation, leading to a surge in long-term U.S. Treasury yields to their highest levels in twenty years. Currently, the yield on 30-year U.S. Treasuries once touched 5.34%, the highest since 2007; U.S. national debt has surpassed $40 trillion for the first time; and inflation has exceeded the 2% target for five consecutive years. Walsh’s silence is becoming an expensive noise.

As Nvidia, the world’s largest AI chipmaker, is about to release its earnings this Wednesday, Wall Street has raised an alarming voice: the risks from Jackson Hole are greater than Nvidia’s earnings report. Ann Miletti, an executive at Allspring Global Investments, bluntly stated that Nvidia’s results represent a “single earnings anchor,” while Chairman Walsh’s remarks may simultaneously change rate expectations, term premiums, dollar liquidity, and global risk asset discount rates, thus serving as a “systemic pricing anchor.”

Walsh’s “Philosophy of Silence”: The Market Is Punishing Uncertainty With Higher Yields

Walsh’s communication strategy after taking office was described by former St. Louis Fed President Bullard as "the most significant shift at the Fed in decades." He canceled the Fed’s decade-long tradition of forward guidance, arguing that the practice "reduces policy flexibility and distorts market signals."

However, the market hasn’t bought in. After the July FOMC meeting, Walsh neither provided in-depth analysis of the economic outlook nor offered any hints on the rate path. Investors saw this as a lack of determination to bring inflation back to target, and long-term bond yields immediately rose to twenty-year highs. Former Philadelphia Fed President Harker bluntly stated: "Walsh must directly address the elephant in the room—the inflation issue. He must say more than just 'we are addressing it.' That kind of statement is no longer enough, and the market will be very disappointed."

Bullard’s warning is even sharper: "The Fed’s credibility is at risk—the market is beginning to believe the committee doesn’t really care about bringing inflation down to 2%." He specifically pointed out that Walsh has so far not explicitly stated a willingness to raise rates to achieve the 2% inflation target, and this very silence itself has become a source of market suspicion.

Goldman Sachs Chief Economist Jan Hatzius warned from a market volatility perspective: Walsh’s vague communication strategy will "make market volatility around the Fed’s future rate decisions significantly more severe," and such volatility "won’t have any constructive effects on the economy." According to Goldman’s estimates, enhanced communication can reduce rate volatility in the coming year by around 10%—Walsh is doing the opposite.

Molly Brooks, U.S. rates strategist at TD Securities, cautions that there is a clear "asymmetric risk" at Jackson Hole—if Walsh delivers too little information, the market is likely to be disappointed, and even if he does provide some explanation of his reaction function, the upside will be limited, as the market does not believe he will provide enough detail.

Bond Market “Out of Control”: 5.33% Returns to 2007 Levels

On August 18, the yield on 30-year U.S. Treasuries intraday touched 5.334%, hitting the highest level since June 2007—just before the global financial crisis broke out. The 10-year yield simultaneously rose to 4.75%, the highest since January 2025. This is not unique to the U.S.—German 10-year government bond yields soared to 3.261%, the highest since 2011; French 10-year government bond yields broke above 4%, the first time since 2009.

Behind this global bond selloff are three resonating structural forces: repeated U.S.-Iran tensions pushing up inflation fears, a flood of AI corporate debt competing with government bonds for investors, and the reality of the U.S. fiscal deficit surpassing $1.8 trillion. Data from the U.S. Treasury on August 19 show that the cumulative fiscal deficit for the first ten months of fiscal 2026 has reached $1.799 trillion, exceeding the total size for the whole of fiscal 2025 with two months still left in the fiscal year.

Kathy Bostjancic, Chief Economist at Nationwide Mutual Insurance Company, pointed out: the factors putting pressure on markets remain, including fiscal concerns, inflation, and uncertainty over how the Fed will respond. "The fundamental reasons for higher long-term rates persist," she said.

Faced with the emergency of the 30-year yield breaking above 5.33%, Treasury Secretary Bezncent intervened on August 19, raising the per-operation liquidity backstop for long-term Treasury securities (10- to 30-year maturities) from $2 billion to at least $4 billion. However, the effect of this "antipyretic" lasted less than 24 hours—as of August 20, the 30-year yield rebounded another 5.7 basis points to 5.251%. The outstanding amount of 20- and 30-year Treasuries is about $5.5 trillion, whereas the extra $2 billion per operation is negligible compared to the multi-trillion total market size.

PCE Data: The “Preliminary Battle” Before Jackson Hole

Before Walsh’s speech, the market will receive the Fed’s most-favored inflation indicator, the July Personal Consumption Expenditures (PCE) price index, on Wednesday, August 26. Economists expect the overall PCE in July to rise 3.6% year-on-year, a slight decrease from 3.7% in June; core PCE is expected to remain around 3.3%—still far above the Fed’s 2% target. Bloomberg Economics points out that although inflation has shown signs of cooling, oil prices have risen again this month, and the ongoing Iran war is pushing up energy costs.

If the PCE data is higher than expected, it will further cement the logic for a rate hike in September—currently the CME FedWatch shows about a 41% probability of a September hike, and one more increase by year-end. If the data is lower than expected, it could give more room for Walsh’s “wait and see” strategy. But regardless of the outcome, the fact that inflation has been above target for five consecutive years has subjected the Fed’s credibility to an unprecedented test.

Former St. Louis Fed President Bullard bluntly stated: "The Fed’s credibility is at risk—the market is beginning to believe the committee doesn’t really care about bringing inflation down to 2%."

Three Possible Scenarios at Jackson Hole

Walsh has not yet decided whether his speech will discuss the “big picture” of the macroeconomy or directly provide guidance for policy paths from September to December. Bloomberg Economics expects Walsh is more likely to choose the latter—"doubling down on his agenda to cut back forward guidance," focusing on describing the Fed’s “intellectual framework” for reform rather than issuing specific policy signals.

HSBC rates strategist Dhiraj Narula noted that this gives Walsh an opportunity to soothe investors by clarifying his outlook. Narula said: "We believe Chairman Walsh’s view on potential inflationary pressures may already provide some justification for lowering term premiums associated with uncertainty."

However, TD Securities expects Walsh "will not change his consistent approach in discussing the economic outlook," and the market will "look for clues regarding his policy reaction function and whether he will again reaffirm the Fed’s determination to fight inflation." Evercore ISI Senior Economist Casiraghi warns that simply repeating the strong commitment to "restoring price stability" from the June and July press conferences "may already be insufficient."

Possible developments for the three scenarios

Scenario 1: Fuzzy Path (most likely). Walsh reiterates the commitment to price stability but refuses to provide a specific path, so the three dissenting votes within the September FOMC become the "only actionable signal." The 30-year Treasury yield may break through 5.4%, the dollar weakens, and gold continues to rise.

Scenario 2: Hawkish Signal. Walsh clearly states his willingness to raise rates to fight inflation, pushing the probability of a September hike up sharply from the current 32%. Long-end yields briefly fall (as the market regains confidence in the Fed’s resolve), but the dollar strengthens and risk assets come under pressure.

Scenario 3: Dovish Pivot. Walsh hints that the bar for further rate hikes is high, and the market bets on no rate hike for the rest of the year. Long-end yields fall on expectations of the "Walsh put," the dollar weakens, and risk assets rebound—but this would further erode his credibility on inflation-fighting.