Survey Ahead of Jackson Hole: The Market Wants Not Treasury Secretary to Suppress Yields, But for Waller to Speak More

Fxstreet, August 27 — A survey shows that 80% of the 31 respondents hope Chairman Walsh can elaborate more on his economic views, but there is increasing divergence on the outlook for interest rates; 45% expect his speech on Friday to provide no guidance on rates, 32% believe it will lean hawkish. 77% of respondents think Bessent’s bond-buying efforts to suppress yields will not succeed, and the 10-year yield is expected to remain between 4.60% and 4.70% until the end of next year. Over the coming year, 53% expect a rate hike, 30% expect a cut, with a 40% probability of a rate hike in September, rising to 70% in December.

The market wants more information from the Federal Reserve chair while also hoping for less intervention from the Treasury Secretary—this is the main signal from media polling ahead of the special Jackson Hole issue. Among 31 respondents, 80% believe the Fed Chair should more fully explain his economic views; but on the question of whether he should speak about the interest rate outlook, there is a clear split—48% to 48%.

Kathy Bostjancic, chief US economist at Nationwide, said: “Given the surge in long-term rates and the high uncertainty around the path of inflation and the Fed’s future reaction function, Chairman Walsh’s speech will be extremely critical.”

The Market Awaits Walsh’s Remarks

Walsh is scheduled to deliver his first keynote address since taking office at 10:00 p.m. (UTC+8) on Friday, August 28, at the Jackson Hole, the Fed’s flagship annual conference. Since taking office, he has adopted a new communication approach—refraining from sharing too many personal views on the economy or policy outlook, a stark contrast to his predecessors.

Most respondents think he will stick to this approach: 45% anticipate he will provide no guidance on interest rates in Friday’s speech, 32% expect a hawkish tone, and 19% think he will remain neutral. Constance Hunter, chief economist and head of research at Economist Enterprise, criticized: “By avoiding forward guidance, Mr. Walsh is throwing the baby out with the bathwater. He has abandoned his role in communicating the Fed’s reaction function, leaving such communication only in meeting minutes and other FOMC members’ speeches.”

Bessent’s Efforts Widely Doubted

Ironically, Treasury Secretary Scott Bessent’s actions seem to make it even harder for Walsh to obtain that “purer market perspective.” The Treasury unexpectedly announced last week it would increase old long-term bond purchases, largely seen as an effort to cap bond yields, but 77% of respondents believe this won’t succeed.

Peter Boockvar, chief investment officer and partner at OnePointBFG, said, “By further front-loading Treasury bill issuance, the US Treasury is making the Fed’s job even more complicated.” Mark Zandi, chief economist at Moody Analytics, wrote: “Efforts to push down long-term rates by the government are like spitting into a headwind driven by the Iran war, massive budget deficits, and confusion about the Fed’s monetary policy trajectory.” Gregory Daco, chief economist at ParthenonEY, commented, “Treasury’s actions are at best a band-aid and at worst a sign of panic.”

The prevailing view that the Treasury’s efforts are ineffective is also reflected in the forecast for the 10-year yield: it is expected to remain at 4.60–4.70% until the end of next year. When asked why bond yields keep rising, respondents on average attributed 37% to increased global debt supply, 28% to rising inflation expectations, 21% to heightened Fed rate hike expectations, and 19% to improved growth prospects.

Greater Divergence on Rate Outlook—Hikes Needed to Bring Inflation Down?

On the eve of the Jackson Hole conference, respondents are more divided than ever on the outlook for interest rates. Over the next year, 53% expect a rate hike, 30% expect a rate cut, and 16% expect no action. Inflation is projected to fall from 3.4% this year to 2.6% next year; unemployment should stabilize at about 4.3% before 2027; and GDP will hover just above 2%. For some, it is precisely the Fed’s rate hikes that have driven this round of inflation pullback.

The divergence over rate policy in the survey is also reflected inside the FOMC, which decides interest rates. In July, the committee voted 9-to-3 to keep rates unchanged, with three votes for a 25 basis point hike. Fed Fund futures show the probability of a rate hike in September at 40%, rising to 70% by December. By contrast, 46% of respondents expect at least one rate hike between now and December.

Walsh’s Institutional Reforms—How Much FOMC Support?

As top policymakers gather in Jackson Hole, Walsh may be facing the “family struggle” he has promised to bring—namely, institutional reform at the Fed.

Respondents are split 40–40% on whether a majority of FOMC members support Walsh’s views on reforming the Fed’s inflation framework; 38% believe Walsh has majority support on balance sheet reform, while 31% think not; 47% say Walsh has majority backing for communication reforms, versus 30% who disagree. However, since Walsh took office, Fed officials have been quite open in their speeches and media interviews about their views on the economy and interest rates.

However, John Donaldson, director of fixed income at HaverfordTrust, commented: “We support the chair’s goal of improving and modernizing Fed operations. This process will be gradual, not revolutionary, and won’t be completed overnight—returning everything to normal will take some time.”

Conclusion

This pre-Jackson Hole survey outlines the market’s nuanced expectations for the relationship between the Fed and Treasury: investors hope Walsh finds a new balance between silence and communication, and generally do not believe Bessent’s bond buying can truly tame yields.

Amid the triple uncertainties of inflation, fiscal, and monetary policy, Walsh’s first keynote speech on Friday is destined to capture global market attention. Will he continue to stay tight-lipped, or break the silence and give direction? The answer is about to emerge.