Odd Lots

Global bond yields are at their highest level since 2008, with the 30-year US Treasury touching 5% just before Treasury Secretary Scott Bessent announced a surprise increase of his department's bond buyback program and Fed Chairman Kevin Warsh made his hawkish speech at Jackson Hole. So what's driving yields higher? And what options do policymakers have to bring them down? In this episode we speak with Stanford Professor Darrell Duffie, who's been researching bonds for years, including presenting a paper at Jackson Hole in 2023 about how to fix the US Treasury market. A lot has changed since then, and at this year's Jackson Hole symposium, we caught up with Duffie to talk about everything going on in the bond market, as well as the challenge of shrinking the Fed's balance sheet.
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Kevin Warsh gave a hawkish speech at this year's annual Kansas City Fed Symposium in Jackson Hole, but that doesn't mean the challenges are over. Will the Fed actually pull the trigger on rate hikes? What happens if the central bank doesn't act quickly enough to curb inflation? And how exactly will the new chair want to leave his mark on the Fed? In this episode, we speak with Adam Posen, president of the Peterson Institute for International Economics, who gives us his take on the direction of monetary policy and he grades Warsh's speech. We also discuss why high inflation in the US is different than the inflation seen in other countries, how the Treasury's wading into the bond market affects Fed independence, which of the Fed task forces might be the most impactful, the "messy jobs" theory of AI, and what Warsh really means when he says he wants the FOMC to have a “good family fight.”

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The implications of Fed Chair Kevin Warsh's Jackson Hole speech are pretty clear: Traders expect a rate hike given the hawkish hints littered in his address, largely focused on inflation. There are still a number of open questions and Warsh's lack of forward guidance does not exactly lend clarity to how the Fed will act in the coming months. Today, we recap the speech — in a conversation recorded from the Lodge at Jackson Hole — with Richmond Federal Reserve Bank President Tom Barkin and he explains why his thinking around the Fed's communication policy is changing, and he gets into what is still useful about things like the dot plot. He also tells us what he's hearing at Chamber of Commerce meetings about the impact of AI on local communities, how businesses are using their tariff refund checks, and whether the Fed will have to start paying attention to the economic effects of data center politicization.
Read more:Bond Investors Wary After Warsh Fuels Wagers That Fed Is Poised to HikeWhere to Invest Now as Data Centers Turn Copper Into a Hot Commodity
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Inflation remains high and the 2% target is farther away than it was this time last year. There are signs all over that the economy is overheating — the strange labor market where hiring and firing remains low, while GDP is growing, but mostly due to AI and the data center buildout — and Chicago Fed President Austan Goolsbee is worried about how uncertain central bankers are about what to do to cool the economy. The next shock, he tells us, could be around the corner. In this conversation, recorded at the Jackson Hole Economic Symposium, Goolsbee explains why he is skeptical of metrics like r*, why he is embracing Kevin Warsh's philosophy around reducing forward guidance, the purpose of the new Fed task forces, and the economic indicators that influence his thinking around reaction function.
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We are back in Jackson Hole! And this year's Federal Reserve Bank of Kansas City symposium on monetary policy might be one of the most interesting editions in years. It marks the first under new Fed Chairman Kevin Warsh, and Fed observers all over the world will be closely watching his Friday speech for signs of how he might further distinguish himself, and the institution he is in charge of, from the Jerome Powell era. This meeting at Jackson Hole also comes at a fascinating, and pretty tense, time for monetary policy in the US and abroad: high bond yields, above-target inflation, and AI's still unrealized effect on broader parts of the economy like the job market. As we have in the past, we speak with Jeffrey Schmid, the president and CEO of the Kansas City Fed, about what to expect and he also shares his thoughts on the wave of baby boomer retirements and how it's affecting the labor force, his recent FOMC votes, and he explains why this symposium is so focused on payments.
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