TD Securities’ U.S. rates strategist Molly Brooks believes markets are more likely to be disappointed if Warsh offers too little information, while upside may be limited.
- Warsh will make his first appearance as Fed chair at the annual Jackson Hole Economic Policy Symposium next week.
- At the time of writing, the U.S. 10-year Treasury yield was at 4.734% while the 30-year yield was at 5.274%.
- Brooks argued that external factors such as AI-related borrowing have also contributed to the upward pressure on long-term yields.
Federal Reserve Chair Kevin Warsh’s upcoming Jackson Hole speech carries more downside than upside for financial markets, according to TD Securities U.S. rates strategist Molly Brooks.
Speaking to Bloomberg TV on Friday, Brooks said investors are unlikely to receive firm guidance on future interest-rate decisions. “In terms of Jackson Hole, we do think that there is somewhat of an asymmetric risk,” Brooks said.
Brooks believes markets are more likely to be disappointed if Warsh offers too little information, while any upside from explaining the Fed’s policy framework may be limited because he is unlikely to provide enough detail.
“It’s most likely going to be disappointing to markets if he doesn’t come out with enough information here, whereas there’s not that much to gain in terms of if he does give us some clarity on a reaction function, just because we don’t think he’s going to give us quite enough there,” Brooks added.
All Eyes On Jackson Hole
Warsh will make his first appearance as Fed chair at the annual Jackson Hole Economic Policy Symposium, which runs from August 27 to August 29.
He has moved away from traditional forward guidance, leaving markets eager for a clearer explanation of how the Fed will respond to inflation and economic growth.
Warsh’s limited guidance after the July policy meeting unsettled investors, with Wharton professor emeritus Jeremy Siegel calling his communication “not defensible” and arguing that while holding rates steady was reasonable, the Fed chair failed to explain the economic rationale for the decision.
Long-Term Yields Face Several Pressures
Limited communication could put pressure on longer-term Treasury bonds by increasing uncertainty about monetary policy, Brooks said. However, she argued that the Fed is not the only reason long-term yields have risen and noted that external factors, such as AI-related borrowing, have also contributed to upward pressure on long-term yields.
The 30-year Treasury yield recently hit its highest level since 2007 amid continued uncertainty surrounding the Middle East conflict and its effects on inflation, large AI-related borrowing, and a high fiscal deficit.
“It’s actually due to external factors, such as AI issuance, but monetary policy uncertainty certainly feeds into higher term premiums, so it’s certainly not helping. But I don’t think the entire story here is the Fed for the long end,” Brooks added.
At the time of writing, the U.S. 10-year Treasury yield was at 4.734% while the 30-year yield was at 5.274%.
Meanwhile, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, gained 0.5%; the Invesco QQQ Trust ETF (QQQ) was up 0.4%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.8%. Retail sentiment on Stocktwits regarding the S&P 500 ETF was in the ‘bearish’ territory.
For updates and corrections, email newsroom[at]stocktwits[dot]com <