The waiting is almost over. Fed Chair Kevin Warsh makes his keynote speech in Jackson Hole on Friday morning, with the investment world focused on what he says about inflation and, specifically, how he intends to get it back down to target. There's a chance he will disappoint expectations, nodding instead to broader issues like the five "task forces" he has set up to overhaul the Fed's wider operational framework.
But it's an open goal to bring down long bond yields, and restore some of the credibility he has lost in his first three months in the hot seat. His press conference after the July FOMC meeting, where he equivocated over his commitment to the Fed's 2% inflation goal, was not a success. One of his five task forces is about "communication". A good start would be sending a clear, unequivocal message on price stability.
Much of the recent focus in global bond markets has understandably been centered on Washington, but Paris is — or should be — on investors' radar too. France's fragile finances face a critical few months, with the annual budget battle this year preceding next spring's presidential election. At this early juncture, the frontrunners are hard-left and hard-right candidates promising to spend big.
France's debt is at a record high, its bond yields are higher than Italy's, and the yield spread over German debt could soon rise over 100 basis points (it was close to 50 bps six months ago, just before the U.S.-Israeli war on Iran). France's fiscal worries often flare up, but usually dissipate quickly enough. This time might be different — the global backdrop is more challenging, with bond markets across the industrialized world also under pressure.
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