The dollar sits at 911. Jackson Hole is the day's main event, and Kevin Warsh's speech is what everyone waits for. There is heavy uncertainty about what he will say. He may keep his usual light touch on inflation and his stick to the 2% target, and lean on task forces. He does not believe in over-communicating with the market, so this could be a very short speech. As a comparison, Jerome Powell once spoke for about eight minutes, took a hard line on inflation, then stepped back. Whatever Warsh says, the reaction will likely be big, and every word will get picked apart.
Rate Odds Shifting
The market now sees a lower chance of a September rate move, based on recent news, while October odds went up. This is just shuffling the deck chairs. The good news: no immediate rate hike is coming. Beth Hammock has been hawkish her whole career and has dissented all along, so her hawkish comments are consistent and not a surprise. The last Fed meeting held rates 9 to 3. Inflation data has mostly been coming down. The PCE data reads as more firm, but the overall picture lets Warsh stay patient and let the task forces work.
A Break From Constant Fed Talk
Warsh plans to run his tenure with less communication to markets. He may not give clear guidance on what gauge the Federal Open Market Committee will use to decide rate moves. PCE, once the Fed's favorite inflation gauge, may no longer hold that spot. He may also cut the number of meetings from eight to six per year, and many support that.
His approach goes back to the old school: let markets figure it out on their own, driven by the data rather than by Fed speakers, updates, and opinions that push the market around each time. He wants markets to move in a more natural way, not swayed by Fed speeches. This looks like Alan Greenspan's style, when there were fewer meetings and no press conference after every one. Greenspan would move interest rates midday, with no meeting, if he felt he needed to. There was even the "briefcase indicator": a wider Greenspan briefcase signaled a move; a thin one meant no change.
Venezuela and OPEC
Venezuela is moving closer to the US and to foreign investment, with the US taking a bigger role in its output, which is set to rise. Because of that closer tie, Venezuela wants to leave OPEC. OPEC's main job is to control the supply of crude oil, and Venezuela does not want that control. The United Arab Emirates already left, and Venezuela, an original member, is expected to follow. Venezuela wants to sign hundred-year lease deals, and outside companies want to come in. This helps Venezuela: higher output means more revenue and a healthier country.
The effect on crude oil today is basically nothing. But sentiment matters. In futures, unlike stocks, sentiment is a big part of trading. Crude oil is down this morning, likely because of this news. For contrast, when President Biden took office and issued his directives, crude oil rallied 20%; now it is falling.
Next Week: Jobs Data
Next week is the first week of the month, so employment data arrives. Non-farm payrolls come a week from today, bringing fresh wages and inflation data. The labor market will be the main focus. Jobless claims have been coming in very low. Watch the unemployment rate closely: it went from 4.3 to 4.2 to 4.1. Yesterday's numbers showed some strength, and the continuing claims coming down is reassuring, since that figure works as a kind of average.
