Jackson Hole becomes a key battleground for U.S. Treasuries; Bank of America warns: If Waller does not signal a rate hike, the 30-year yield may surge to 5.5%.

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Fed Chair Warsh is about to appear at the Jackson Hole annual meeting, which the market regards as the most critical risk event for the current U.S. Treasury and dollar trends. Against the backdrop of the Treasury Department ramping up long-end bond buybacks and continued pressure on the dollar, whether Warsh can clearly send an anti-inflation signal will directly determine the direction of 30-year U.S. Treasury yields.

According to Feng Trading Desk, a Bank of America research report released on August 24 notes that market expectations for Warsh’s speech have quietly shifted—the sustained rebound in the bond market is forcing this historically guidance-resistant Fed chair to adjust his communication strategy. BofA strategists Mark Cabana, Stephen Juneau, and Alex Cohen warn, if Warsh fails to clarify the inflation outlook and the monetary policy response function, the 30-year U.S. Treasury yield could quickly test 5.5% or even higher, and the dollar will face another round of downward pressure.

Barclays economists Marc Giannoni and others pointed out in a report released on August 21 that although Warsh is unlikely to provide specific rate trajectory guidance, the market will closely watch whether he clearly states—if inflation fails to improve, the Fed is willing to restart rate hikes. Barclays believes the probability of Warsh making such a statement is over 50%, which would help reinforce the policy response function that is already implied in current market pricing.

Meeting Background: Dual Pressure on the Bond Market and Dollar—Why This Time Is Different

The Jackson Hole annual meeting is an economic policy symposium hosted by the Kansas City Fed, bringing together central bank officials, policymakers, academics, and economists from around the world. This year's meeting is held August 27-29, with the theme "Financial Innovation: Impacts on Payments and Policy." Warsh will speak at 10 a.m. ET on August 28 (10:00 p.m. Beijing time), and historically, there is no public Q&A after the speech.

BofA notes that there are two main reasons why the market is paying special attention to Jackson Hole: First, the interval between the July and September FOMC meetings is the longest of the year (seven weeks), during which two nonfarm payroll and CPI releases take place—the market traditionally views this period as a window for Fed pre-policy signaling; Second, summer market liquidity is thin, so any remarks may lead to greater price volatility.

This year’s meeting is unique in that both the bond market and dollar are already in a vulnerable state. Last week, the U.S. Treasury announced increased long-end bond buybacks, causing a sharp fall in the dollar on the day of the announcement. BofA believes this move reflects government concerns about persistent rises in long-end yields. Coupled with the earlier "dovish" July FOMC meeting and weaker August U.S. economic data, the dollar has seen multiple negative shocks.

Market Expectations: Warsh Needs to "Break from His Past Self"

Warsh has long resisted forward guidance. At the July FOMC press conference, he said the direction of the Jackson Hole speech was undecided, listing two possibilities: one, focusing on macro long-term topics such as productivity, demographics, and global economy; the other, directly addressing near-term policy direction for September to December.

BofA believes that the market’s “pressure” effect is changing this choice. The report quotes heavyweight boxer Tyson—"Everyone has a plan until they get punched in the face"—to note that the bond market’s ongoing blows to Warsh may make it difficult for him to continue avoiding policy pronouncements.

BofA strategists expect Warsh to reference the recent commentary style of Fed officials Paulson and Cook, outlining policy response paths for two scenarios: if the disinflation process continues, maintain the current stance; if inflation remains high, clearly indicate readiness to resume rate hikes. BofA believes this framework-style statement can effectively transmit the policy response function without committing to a specific path.

Barclays holds similar views and notes that Warsh may also comment on the forward guidance system itself—he has always criticized forward guidance for limiting policy flexibility and causing historical errors, and has set up a special working group to assess this since taking office. In addition, Warsh may provide more information on Fed balance sheet policy, though any suggestion to further shorten portfolio duration will need extra caution given current elevated long-end yields.

Two Scenarios: Diverging Paths for Rates, Curve, and Dollar

BofA has outlined two clear market scenarios based on Warsh’s speech content.

Scenario One: Warsh Sends Rate-Hike Signal as Expected. If he clearly states willingness to resume rate hikes if inflation does not fall, BofA predicts: the probability priced for a September FOMC rate hike will rise from the current 9 basis points to 12.5 basis points (basically a coin toss); the total priced rate hike for this cycle will jump from about 40 basis points to near 50 basis points; the nominal and real yield curves will flatten; and the dollar may recover part of its losses.

Scenario Two: Warsh Avoids Policy Pronouncements. If his speech emphasizes productivity, AI-driven disinflation, and other structural narratives, or deliberately avoids near-term policy under the banner of “no forward guidance,” BofA warns the market may interpret this as a dovish signal, triggering an even steeper curve bear steepening, with the 30-year Treasury yield possibly quickly breaking through 5.5%, and the dollar coming under a new round of selling pressure.

BofA emphasizes that the recent dollar weakness has shown a troubling sign—after the buyback announcement, the dollar fell even as yield spreads between the U.S. and other countries widened. This is a classic risk-premium expansion, reflecting market concerns about "fiscal dominance." If Warsh’s remarks further fuel doubts about Fed monetary policy independence, the "dollar depreciation" camp will gain more ammunition.

Historical Reference: Jackson Hole Usually Isn't a Market Turning Point, But This Year May Be an Exception

Historical data shows Jackson Hole’s impact on U.S. Treasury markets is usually limited. BofA statistics show since 2010, 10-year Treasury yields typically fall slightly after the meeting, but this trend usually reverses within ten trading days; 2025 was an exception—emphasis on downside risks to the labor market sparked sustained yield declines and notable dollar weakness.

Foreign exchange markets show a similar pattern: the dollar often weakens slightly before and after the meeting, but usually recovers lost ground within several weeks; under Powell, the average magnitude of dollar reaction to Jackson Hole has been larger. 2022 stands out—Powell’s tough anti-inflation speech directly triggered a surge in rates and a stronger dollar.

BofA notes this year’s backdrop is unlike previous Jackson Hole meetings: the Treasury has already intervened in long-end yields; now the ball is in Warsh’s court (“Bessent acted, Warsh now holds ball”). At this special moment, if Warsh fails to meet the market’s minimum expectations for policy credibility, this year’s meeting may become the most far-reaching market event in years.

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