NextFin News - Federal Reserve Chairman Kevin Warsh used his first Jackson Hole speech to hand market participants a data dashboard for reading the US economy themselves, laying out the specific indicators his policy team will track while refusing to convert that reading into a promise about interest rates. In remarks delivered on August 28 at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming - an address he framed as marking his 100th day as chairman - Warsh listed the market internals, Treasury prices and volumes, dollar value, credit conditions, and commodity prices that will inform the central bank's outlook, then drew a bright line between information and instruction: "You can call it an outline . . . you can call it a trail map . . . just don't call it forward guidance."
The Situation: A Dashboard With a Withheld Decision
Warsh's speech, titled "In Our Time," was the clearest statement yet of how he intends to run the Fed after taking the oath of office on May 22, succeeding Jerome Powell. The message was deliberately two-sided, and the tension between its two halves is the story.
On one side, he offered the most detailed public account of his economic reading since becoming chairman. The economy "appears to have strengthened," he said, with "both Main Street and Wall Street remarkably resilient." Real consumer spending is up more than 2 percent over the past four quarters, and private domestic final purchases - what Warsh called a gauge that "typically carries more signal than gross domestic product" - has risen at a pace of nearly 3 percent so far this calendar year. On the employment side of the Fed's dual mandate, "our country is doing well": the jobless rate at 4.1 percent "remains low by historical standards and has not changed much for a couple of years," and unemployment claims on a four-week average are "near their lowest level in decades," which he described as "an empirically robust real-time indicator."
On the other side, he refused to tell markets what he would do with that reading. "I stand here today committed to a discipline, not to a decision," Warsh said in his closing line - a sentence that was at once reassuring about the Fed's resolve and withholding about its next move. The discipline he described is built on data the Fed will observe and publish, not on the central bank's private forecasts of its own behavior.
Investors absorbed the shift quickly. The two-year Treasury yield rose 11.8 basis points to 4.348 percent, its largest one-day increase since March, as traders priced a materially higher chance of a rate increase at the September meeting. Interest-rate futures pointed to roughly a 55 to 58 percent probability of a September hike, up from about 35 percent the day before, according to the CME FedWatch tool. The S&P 500 finished down 0.2 percent, the dollar climbed alongside yields, and gold fell 3.2 percent.
The market understood what Warsh was doing even before it finished parsing the speech. He wants investors to price inflation risk using the same dashboard the Fed uses - while denying them the one thing they have grown dependent on: explicit guidance about what the Fed will do with that information. That is a change in the operating system of monetary policy, not merely a change in the setting of the policy rate.
A Dashboard, Not a Map: Inverting the Fed-Market Relationship
The centerpiece of the speech was a short list of indicators that reads like a dashboard rather than a forecast. Warsh said the Fed needs "clear market signals, as unfiltered as possible" - market internals, the level and change in asset prices across sectors, the prices and trading volumes of Treasury securities, the foreign-exchange value of the dollar, the cost and availability of credit, and the price of a broad set of commodities. "These and other indicators," he said, "should inform the Fed's near-term outlook on economic activity and inflation throughout the business cycle. They should also reveal the state of broader financial conditions . . . and the risks and uncertainties in the financial cycle."
The significance is not the list itself - most of these series are already public - but what Warsh asked market participants to do with it. "Market participants themselves should be tracking real information across the economy," he said. "They should draw their own conclusions; form their own expectations of output, employment, and inflation; and stay sharply attuned to risks."
That sentence inverts the relationship that has governed Fed-market interactions since the forward-guidance era began. For more than a decade, the Fed treated guidance as a policy tool: by telling markets what it intended to do, the central bank could move financial conditions without moving the policy rate. Warsh's argument is that the tool has become a trap. He described a "hall-of-mirrors problem" in which the central bank and investors end up watching each other instead of the economy.
"If markets rely materially on the Fed's guidance and the Fed relies on market prices, we are all more likely to be blinded to new developments . . . more likely to be caught unprepared for a turn of events . . . and more likely to commit errors in policymaking," Warsh said.
The mechanism here is information feedback, not the level of interest rates. When the Fed's policy depends on market prices, and market prices depend on the Fed's guidance, neither side is observing the economy directly. A dashboard of raw indicators is Warsh's attempt to break the loop by giving the committee and investors a common external reference point. The bet is that a shared set of facts will produce less volatility over time, even if it produces more volatility while the market relearns how to form expectations without hand-holding.
The framework did not appear out of nowhere. Since taking office, Warsh has established task forces to review the Fed's operations across communications, balance-sheet policy, data, productivity and jobs, and inflation frameworks, each staffed in part by outside academics and business figures. The Jackson Hole speech was the public face of that review - an announcement that the data the Fed watches will be the data the market watches, and that interpretation is no longer a service the central bank provides.
The Inflation Arithmetic Behind the Dashboard
The dashboard is not neutral. Warsh populated it with numbers that point in one direction, and he framed the conclusion in language that leaves little room for ambiguity. His standard, stated verbatim: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job . . . our mandate . . . and our charge to keep."
The arithmetic he offered to justify that standard rests on the internal composition of the personal consumption expenditures price index, the Fed's preferred inflation gauge. Government data released this week showed PCE inflation at 3.7 percent for July. Warsh went deeper, disaggregating the index into its 199 individual components. Over the past 12 months, he said, 54 percent of goods and services in the PCE basket showed price increases above 3 percent. That is well below the post-pandemic high of about 77 percent, but it remains well above the 32 percent level that prevailed in the two decades before the pandemic. Looking at just the past six months, 49 percent of components still showed annualized price increases above 3 percent.
The point of the exercise is to show that the 3.7 percent headline is not being driven by a handful of volatile categories. Roughly half of the basket is running hot by the Fed's own definition, and that breadth did not narrow in the second half of the year. Warsh paired that with the labor-market data to preempt the argument that weakness is coming. With unemployment at 4.1 percent and claims near multi-decade lows, there is no slack that would force the Fed's hand toward easing.
He also removed a pillar of the dovish case. "In tracking underlying inflation," Warsh said, "wage growth has not proven a reliable indicator of future inflation for a very long time." That line matters because the argument for waiting - for ruling out a hike - has often rested on the expectation that slowing wage growth will pull inflation down. Warsh is telling his committee, and the market, not to lean on that channel.
The anchor of the whole argument is a single number: 65 months.
"There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs."
Five years and five months of above-target inflation is, in his framing, a policy failure that the policymaker is obligated to fix - not a temporary overshoot that patience will erase. He recommitted to the Fed's 2 percent inflation objective as a "firm, fixed target," leaving no room for the speculation that followed his July news conference that he might be open to changing it.
Warsh was equally clear about what will not drive near-term policy. Artificial intelligence, for all its economic promise, is not a current policy input. He noted that annualized token sales for the two leading AI labs alone exceed $100 billion, up more than 500 percent from a year ago, and that the Fed recognizes AI as "a new variable - potentially a new factor of production." But the task force examining AI's economic impact has not yet reported, and "their recommendations will come later and have no bearing on decisions we make in the current policy conjuncture."
The Second-Order Trade: Volatility as the Price of Clarity
The first-order reading of the speech is straightforward: higher-for-longer rates, with a hike still very much in play. The second-order consequence is what will matter for asset prices over the coming months, and it cuts in a less obvious direction. If the Fed stops telling markets what it will do, the market must price policy uncertainty itself - and the instrument for that is the term premium.
Under the forward-guidance regime, the Fed compressed the term premium by making the future path of short rates predictable. Investors accepted lower compensation for holding long-duration bonds because the central bank had effectively removed surprise from the equation. Warsh's dashboard removes that compression. The same speech that reassured investors of the Fed's inflation resolve also told them they are on their own for translating that resolve into a rate path. That combination - a firm objective paired with an opaque reaction function - is a recipe for a wider dispersion of rate expectations, which shows up as a higher term premium, a steeper yield curve, and more frequent repricing of duration risk.
The immediate evidence was visible in the two-year yield's 11.8-basis-point jump, the largest one-day move since March. But the more important adjustment will play out further out the curve. Rate futures moved with the speech: the odds of at least one hike before 2027 rose to roughly two-thirds on prediction markets, and the odds of a hike before mid-2027 and before 2028 climbed further still. Those numbers can move back just as fast if incoming data softens - which is precisely Warsh's point. The market is now the processor of incoming information, and it will reprice on every print.
There is also a distributional second-order effect that Warsh himself flagged.
"Perversely, market participants are unlikely to bear the biggest costs of the hall-of-mirrors problem," he said. "The most serious harm is likely to befall those without financial assets. . . . Hard-working Americans are the ones left to deal with inflation that is too high or jobs that suddenly appear less secure."
The argument is that the financial sector can hedge a misread Fed; households cannot hedge persistent inflation. That is the political-economy justification for accepting more market volatility in exchange for a harder line on prices.
The Counter-Case: Discipline Without a Decision
The strongest argument against reading this as a regime shift is the speech's own closing line: "committed to a discipline, not to a decision." A dashboard of indicators is not a policy rule. Nothing in the speech mechanically ties a specific data print to a specific rate move, and Warsh explicitly left the September decision open. Skeptics can argue that what changed on Friday was rhetoric, not the reaction function - that the Fed under Warsh will still look at the same data, weigh the same trade-offs, and ultimately move rates the way any committee would, guidance or no guidance.
That counter-thesis has force. Central banks cannot fully escape forward guidance because markets will infer a reaction function from behavior regardless of what the chairman says. If Warsh raises rates in September, he will have sent the market a signal at least as clear as any dot plot. If he holds, the market will learn that the dashboard tolerates 3.7 percent inflation without a hike. Either way, the market reconstructs the guidance the speech disclaimed.
There is also the question of whether the dashboard is new at all. Market internals, Treasury volumes, the dollar, credit conditions, and commodity prices have informed FOMC deliberations for decades. What Warsh has really changed is the public framing - telling markets to read the data themselves rather than waiting for the Fed to interpret it. That is a communications shift, and communications shifts can be reversed by the next chairman, or by the same chairman under political pressure. The president has continued to demand lower rates, and Warsh's reading of the economy puts him clearly at odds with the administration. The durability of the framework will be tested less by the data than by whether Warsh can hold it under that pressure.
The counter-thesis is not a strawman, and it deserves its weight: the dashboard may be more theater than mechanism. But it misses the one thing that makes this different from ordinary communications. Warsh did not merely decline to give guidance; he gave markets the raw inputs and told them the Fed would no longer be their analyst. Even if the reaction function is unchanged, the cost of capital for duration risk has risen, because the guarantee of interpretive hand-holding has been withdrawn.
Conclusion: What to Watch and What Would Prove It Wrong
The practical implication is that investors should build their own dashboard and stop waiting for the Fed to resolve uncertainty for them. The beneficiaries of the new regime are those who can process raw data quickly - systematic macro funds, relative-value desks, and anyone positioned for a wider distribution of rate outcomes. The exposed are the trades that relied on Fed hand-holding: duration positions sized on a single expected path, and yield-curve strategies that assumed a compressed term premium.
Split by horizon, the picture is mixed. In the short term, expect more volatility around data prints, because every inflation and labor report now moves the probability of a policy move rather than merely confirming a pre-announced path. Over the medium term, the direction of rates depends on whether the breadth of PCE inflation narrows - if the share of components above 3 percent falls back toward the pre-pandemic 32 percent, the hike pressure eases; if it stays near 50 percent, the Fed has work to do. Over the long term, the structural question is whether the Fed can sustain a no-guidance regime through a political cycle in which the administration wants lower rates.
Three scenarios frame the next six months. The base case is a September rate increase followed by data-dependent pauses, with the Fed letting the market absorb each move. The upside case for risk assets is that incoming prints show the six-month breadth number rolling over, giving Warsh room to hold and re-anchor markets. The downside case is that commodity prices and the dollar keep feeding through to core services, pushing the hike probability higher and forcing a repricing of both bonds and equities.
The falsifying signal is concrete. If the September FOMC statement holds rates steady and reverts to guidance-heavy language about the future path - or if Warsh's subsequent public remarks resume offering explicit expectations about where policy is headed - then this was rhetoric, not a regime change, and the term-premium trade should be unwound. Conversely, a September hike delivered with no forward path would confirm that the dashboard is real.
Warsh did not give the market a rate path on Friday. He gave it something more consequential: a dashboard, a discipline, and the bill for 65 months of inflation - and told investors they would have to read it themselves.
Explore more exclusive insights at nextfin.ai.
