Jackson Hole speech approaching; Wall Street institutions collectively call for a clear anti-inflation signal

According to Zhitong Finance APP, this Friday, Federal Reserve Chairman Kevin Walsh will deliver a keynote speech at the Jackson Hole Global Central Bank Annual Meeting. As US Treasury yields remain elevated and US inflation has exceeded the 2% target for five consecutive years, several Wall Street institutions, including JPMorgan Chase, Apollo Global Management, and Morgan Stanley, have unanimously called for Walsh to clearly demonstrate the Federal Reserve’s firm commitment to fighting inflation in this speech.

Market Logic: Anti-Inflation Stance Could Suppress Long-Term Yields

Investors generally believe that if Walsh sends a strong signal about price stability in his Friday speech, it could trigger buying in 30-year US Treasuries, thereby pushing down long-term yields. Last week, the 30-year US Treasury yield climbed to 5.34%, reaching its highest level since 2007.

This move would also provide support for US Treasury Secretary Scott Besant. Besant has previously taken multiple measures, including repurchasing long-term bonds, in an attempt to curb the sell-off of long bonds and alleviate the US’s increasingly burdensome interest costs. However, despite Treasury intervention, the 30-year yield has remained above the 5% threshold for nearly two months. Persistently high borrowing costs have put pressure on the US real estate market, private equity firms, and small businesses.

Since the July FOMC meeting, Walsh’s ambiguous communication style has left investors confused and led to doubts about the Fed’s resolve to control prices. At the post-meeting press conference in July, Walsh refused to explain how policymakers would respond to different economic scenarios, and some of his comments were even interpreted by parts of the market as “the Fed may adjust its inflation target in January next year,” directly triggering a sell-off of long-term bonds.

Priya Misra, portfolio manager at JPMorgan Asset Management, said that if Walsh could take this opportunity to make it clear that fighting inflation is the top priority, “market anxiety about the Fed’s credibility will be alleviated.” Misra noted that a tough stance from Walsh on high inflation would lower the term premium.

Vishal Khanduja, head of broad market fixed income at Morgan Stanley Investment Management, also said: “If the Fed focuses on inflation, the term premium should fall significantly, as the Fed’s credibility would be greatly enhanced.” The term premium measures the extra compensation investors require for holding long-term US government debt. A term premium indicator tracked by the New York Fed is now near its highest level since 2014.

Institutional Consensus: Walsh Must Provide Clear Policy Framework

Jay Barry, head of global rate strategy at JPMorgan, stated that if Walsh retracts some of his ambiguous comments on Friday, “it may lead to a flattening of the US Treasury yield curve.” This typically occurs when short-term rates rise faster than long-term rates.

Torsten Slok, chief economist at Apollo Global Management, said Walsh “must deliver a clearer statement than at the July press conference.” Slok emphasized that Walsh does not need to pre-announce the Fed’s next step on rates, but must comment on current inflation and the job market to clarify his policy priorities. Slok warned: “If he cannot provide any framework guidance, the risk is that long-term rates will rise even more.”

Slok further pointed out that the Treasury yield curve is facing multiple upward pressures: the long end is weighed down by a historic $40 trillion debt load; the short end remains high due to stubborn inflation; and the middle is under pressure as AI giants take on large-scale borrowing. He said: “The entire yield curve is at risk of rising further.”

Walsh’s speech will also give the market a window into macroeconomic prospects—next week will see the release of the August employment report, and the Consumer Price Index data will be published a few days before the Fed’s next policy decision on September 16. Currently, federal funds futures indicate an approximately 35% probability of a 25 basis point rate hike next month.

WisdomTree’s Director of Investment Strategy Kevin Flanagan said, “Ultimately, the data will be the final arbiter, which will be the market’s main focus after Walsh’s speech. The two-year yield remains above the federal funds rate, reflecting the uncertainty premium around Walsh, and showing that even with some softening in July’s employment and inflation data, the possibility of a rate hike has not been fully ruled out by the market.”