The Fed Chair: Committed to Discipline, Not a Decision

Warsh describes employment as stable while historical payrolls are revised down

At 10 p.m. Beijing time on August 28, Fed Chair Warsh delivered his first keynote speech since taking office. He said the US labour market was consistent with full employment, a judgment supported by an unemployment rate of 4.1%. At the same time, the Bureau of Labor Statistics (BLS) revised employment gains over the year ending March 2026 down by 79,000. The two announcements arrived together, creating a subtle mismatch in the information presented.

What kind of meeting is this?

Jackson Hole is an annual closed-door symposium in Wyoming, bringing together central bankers from around the world. It does not hold FOMC votes, publish interest-rate decisions or release a dot plot. The symposium itself does not settle any rate decision. Senior IMF and BIS officials, central bank governors and academic economists attend.

Three past signals of a policy shift

In 2010, Bernanke signalled a second round of quantitative easing there. The S&P 500 subsequently gained about 20% by year-end.

In 2020, Powell announced average inflation targeting, allowing inflation to exceed 2% and paving the way for monetary accommodation.

In 2022, Powell delivered a hawkish speech on fighting inflation, and all three major US equity indices fell more than 3% that day.

What signals did Warsh send this time?

Warsh's central message was that he was committing to a policy discipline rather than to a particular decision.

He declined to provide conventional forward guidance or an explicit policy reaction function. He would not promise in advance whether rates would rise, and specifically warned markets against treating his remarks as forward guidance.

His policy position was nevertheless clear. The 2% inflation target was firm and fixed. This summer's inflation data had not demonstrated a meaningful improvement in the underlying trend. He also stressed that if the Fed was not sufficiently confident inflation was returning to 2%, it still had work to do. A rate hike remained an option, but that did not mean the Fed had decided to raise rates.

Markets immediately repriced

The probability of a September hike rose from 35.4% to 57.5%.

The two-year Treasury yield reached a one-month high.

Expectations that rates would remain unchanged through year-end were cut in half, and gold closed about 3% lower.

Equity market moves were limited. The larger changes occurred in Treasuries, gold and expectations for monetary policy.

Why can a speech move markets without an explicit commitment to raise rates?

Put simply, markets trade on policy expectations. Warsh deliberately removed the guidance on which investors had become accustomed to relying. His refusal to provide a predetermined rate path was itself an important signal.

What should we watch next?

September 4: August payrolls.

September 11: CPI.

September 16: the FOMC dot plot.