The market awaits clear signals but encounters "vague steering"; Waller's speech on Friday may determine the direction of long-term Treasuries, with 30-year yields likely to rise above 5.5%

According to Zhitong Finance APP, Federal Reserve Chairman Waller is set to deliver a highly anticipated keynote speech on Friday at Jackson Hole, as the market tries to assess what signals he might send regarding key issues impacting the economy and monetary policy. He will speak at the Fed’s annual symposium held in Wyoming, with this year’s theme being “Financial Innovation: Impacts on Payments and Policy.”

Historically, successive Fed Chairs have often used this occasion to elaborate on their overall policy frameworks and intentions regarding the path of interest rates, beyond the meeting’s core topics. However, since taking office in May, Waller has emphasized following market trends rather than relying on the Fed’s own signals as guidance—a style that has made his actions difficult for the outside world to predict.

Luke Tilley, Chief Economist at M&T Bank and Wilmington Trust Investment Advisors, said: “People keep asking me what I expect, but I honestly don’t expect much. I think it’s hard to predict what he’ll say. If I had to guess, I believe he'll offer a very broad, high-level discussion about the progress of each working group and how the Fed should operate, rather than making specific, detailed assessments of economic and policy expectations.”

Waller has established five working groups aimed at a so-called “first principles” comprehensive review of the Fed’s functions. Their tasks include evaluating policymakers’ views on inflation, the state of the balance sheet, the data metrics influencing decisions, technology-related topics, and communication mechanisms.

On the latter point, Waller has adopted a starkly different approach compared to his recent predecessors: he no longer guides market reactions through carefully laid-out signals, but rather favors a more hands-off strategy, allowing the markets to interpret data and send signals to the Fed.

This strategy has so far met with mixed reactions and may even generate negative effects.

The Market Awaits More Information

Tilley commented: “I hope he will elaborate in more detail on his personal views regarding the mechanisms of inflation formation or through which channels and with what lag monetary policy affects inflation. This doesn’t even have to touch on the policy reaction function—just clarifying the basic transmission mechanisms from financial markets to monetary policy would suffice, as there are many channels in between.”

Against the backdrop of persistently rising Treasury yields, Friday’s speech is expected to have a particularly significant market impact.

Joseph Brusuelas, Chief Economist at RSM, noted: “Because of some unforced errors early in Waller’s tenure, we are about to witness perhaps the most unusual Jackson Hole monetary policy symposium in recent memory. The market’s expectations for this speech have risen to levels that the Fed itself may not welcome.”

However, risks go far beyond market reactions.

With yields rising, Treasury Secretary Scott Bessent announced a plan last week to double the scale of the Treasury’s repurchases of off-the-run securities already issued. The Treasury typically conducts $2 billion in buybacks per week, but starting with the next round on September 9, this amount will be “at least” doubled.

Although this is limited in scale relative to the massive US debt stock, it could still create a tricky situation for Waller. The intervention actions by the fiscal and monetary authorities seem to contradict the intentions Waller has demonstrated thus far.

Brusuelas said: “We're now in a unique situation where the Treasury’s actions have constrained Waller’s room to maneuver. As a result, the Fed Chair is in a dilemma.”

Market Impact

One major and common complaint since Waller’s appointment has been that he is not only unwilling to provide so-called forward guidance, but also has not clearly defined the “reaction function”—that is, the conditions that would trigger a change in policy direction.

Mark Cabana, Head of US Rates Strategy at Bank of America, stated that if Waller again sidesteps these issues, it could trigger significant market consequences.

In a client note earlier this week, Cabana wrote: “In short, we expect Waller to signal that if inflation does not continue to moderate, he is ready to hike again. Conversely, if his speech only focuses on macro-structural topics like productivity or demographics, we worry the market may interpret this as a dovish signal.”

Cabana further pointed out that in such a scenario, long-term Treasuries are expected to face selling pressure, with the 30-year yield potentially rising to 5.5% or higher—more than 30 basis points above current levels, reaching a high not seen since at least the early 2000s.

Therefore, for Waller, being explicit and specific might be his best strategy. Brusuelas said: “Waller can no longer afford to continue with ambiguous, vague statements. He needs to be more candid and clear about his position.”