Walsh's Jackson Hole speech is expected to be lackluster; Waller's remarks in September may offer more trading value.

On Friday, Federal Reserve Chairman Kevin Warsh will speak in Jackson Hole, which may once again disappoint bond traders hoping for a clear policy signal. The truly valuable trading opportunity may not come until Governor Waller speaks next week.

Multiple signs indicate that Warsh will continue his sparing use of language since taking office, refraining from issuing clear signals regarding interest rate trends. This means that financial markets will still largely rely on newly released economic data to determine policy direction.

If a sell-off occurs in US Treasuries after the speech, market participants believe that this reflects more the investors' adaptation to the new framework of "no forward guidance" than a substantial shake-up of the Fed's credibility in combating inflation.

Bloomberg analysis points out that Waller's speech, scheduled for September 3, could provide the market with more actionable clues. With only two days remaining before the FOMC meeting's quiet period on September 15-16, his remarks will carry significantly increased market weight.

The Warsh style has become a chronic problem in the market, and the bond market is suffering from unclear policy direction.

Since taking the helm of the Federal Reserve, Warsh has deliberately maintained vague wording, leaving more room for the market and data to interpret policy signals, rather than actively guiding expectations through forward guidance. This style has caused ongoing problems in the bond market.

Currently, the yield on 30-year US Treasury bonds is near a 20-year high, making it one of the areas most vulnerable to market shocks under policy uncertainty.

Meanwhile, SOFR futures pricing indicates that the probability of a Fed rate hike in September is over 30%, with short-term interest rate expectations relatively stable, while long-term rates are more vulnerable.

Waller has turned ambiguity into signal, and the context of this speech is even more crucial.

If Warsh defined the Fed’s current communication style, then Waller plays the role of conveying the policy response function.

In July of this year, before the release of the June CPI data, Waller translated Warsh's ambiguous stance into information that the market could directly tradable. He explicitly stated that if core inflation overheated again, the Federal Reserve would need to consider raising interest rates in the near future.

However, the situation changed afterward. The year-on-year growth rate of core CPI declined in both June and July, and the PCE data released this Wednesday also showed a moderate trend, which cooled expectations for an interest rate hike.

This makes Waller's speech next week even more significant. It's worth noting that the theme of this event is precisely the inflation outlook and the Fed's policy response, addressing the market's most pressing concerns.

The speech on September 3rd came just two days before the start of the pre-FOMC meeting's blackout period, marking the last substantive window for officials to speak publicly before this round of meetings.

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