Jackson Hole hasn't opened but the Federal Reserve's “Hawk” came first! Schmid said bluntly that interest rates are still not tight enough, and the risk of interest rate hikes will return to the trading desk

The Zhitong Finance App learned that at a time when long-term US bond yields are rising and corporate benchmark borrowing costs in the credit bond market continue to rise, global investors are setting their sights on the Jackson Hole Global Central Bank Annual Meeting. Kansas City Federal Reserve Chairman Jeff Schmid's latest remarks before the US stock market on Thursday seemed to be a “hawkish prelude” before the official agenda of the central bank meeting began — he said in an interview with the media on the eve of the opening of the Jackson Hole conference that the 3.5% to 3.75% federal funds rate may even still be loose rather than restrictive. For financial market investors, the core pricing event affecting trading strategies throughout September and the second half of the year is undoubtedly the keynote speech that Federal Reserve Chairman Kevin Walsh will deliver at the Jackson Hole conference on Friday local time.

Schmid said that at a time when inflation continues to be above the 2% target, the Federal Reserve's current interest rate setting has not deterred the US economy. In an interview with the media in Jackson Hole, Wyoming, Schmid said, “For me, I think short-term interest rates may even be accommodative. So we still have work to do.”

Schmid stepped into the interest rate hike camp, and Wash Jackson Hole debuted and became the focus of global pricing

Economists are currently divided on whether the Federal Reserve will need to raise interest rates in the next few months to contain inflation. According to the latest inflation price data released on Wednesday, in the year ending July, the PCE price index, the most popular inflation index of the Federal Reserve, rose 3.7% year on year, significantly higher than the 2% target point anchored by the Federal Reserve. At the month-on-month level, it rose 0.2%, higher than market expectations of 0.1%.

At the July meeting, policymakers voted to maintain the benchmark US Federal Reserve's federal funds rate in the 3.5% to 3.75% range. Three Federal Reserve FOMC officials who have the right to vote on the Federal Reserve's monetary policy voted against it and advocated an immediate interest rate increase.

The minutes of the Federal Reserve meeting showed that several officials, including those without voting rights, supported interest rate hikes, while many others said that if inflation does not fall back, it is necessary to tighten monetary policy.

Schmid said, “Some of my colleagues voted against it at the last meeting, so I'm probably going to put myself in that camp too.”

Schmid delivered the above speech on the eve of the opening of the annual global central bank seminar held by the Federal Reserve in Grand Teton National Park. Federal Reserve Chairman Kevin Walsh will deliver a keynote address on Friday, and investors will be watching closely at that time.

The next meeting of policy makers will be held from September 15 to 16, followed by another meeting in late October, on the eve of the midterm US political elections. Schmid said he doesn't think the election will influence the Federal Reserve's decisions.

Speaking about the election, he said, “When we entered that conference room, we were able to honestly express our views on the state of the economy. I just don't think election factors will be taken into account in decision-making. It certainly doesn't factor into my decision making.”

The Kansas City Federal Reserve Chairman also refuted the view that the Federal Reserve's credibility has been damaged. Earlier, the unstable performance of Federal Reserve Chairman Kevin Walsh at the July press conference triggered negative reactions in the bond market.

“As far as I'm concerned, I haven't seen this happen,” Schmid said.

Jackson Hole's limelight has even surpassed Nvidia's results! Walsh may speak or decide on the next risky asset journey

Ann Miletti (Ann Miletti), a senior executive from Allspring Global Investments, a well-known investment institution on Wall Street, recently said that compared with the “global artificial intelligence computing power weather vane” — NVDA.US (NVDA.US), which also has a market capitalization of over 5 trillion US dollars, the latest results and future prospects, the upcoming Jackson Hole (Jackson Hole) global central bank economic policy seminar is more worrisome for Wall Street and retail investors.

Miletti said that the company's benchmark borrowing cost has risen from less than 5% at the beginning of the year to more than 5.5%. Although this absolute level is not extreme from a historical perspective, “what is really likely to have an impact is the speed and magnitude of change” — especially in the current context of the scale of capital expenditure associated with AI computing power. Miletti also serves as Allspring's Chief Diversity Officer.

A number of senior Wall Street strategists, including Miletti, have recently warned that Jackson Hole's risk is greater than Nvidia's earnings report. Their underlying logic focuses on — with the recent strong upward trend in US bond yields of 10 years or more to hit a 20-year high, putting pressure on global risk assets, the two levels of influence are already quite different. Nvidia's performance mainly focuses on pricing AI computing power demand, AI computing power industry chain profit margins, and industry chain orders, and is a “single profit anchor”; however, Walsh's speech may also change the Fed's monetary policy interest rate expectations, long-term US bond maturity premiums, dollar liquidity, and global risk asset denominator side discount rates, which are “systemic pricing anchors.”

Walsh's first Jackson Hole keynote address in his career as US Federal Reserve Chairman on August 28 is not simply releasing “hawkish” or “dovish” terms, but rather whether the Fed can provide a credible anti-inflationary response function under the framework of Walsh's forward-looking reduction guidelines — that is, what data will trigger interest rate hikes, how to view the current interest rate range of 3.50% to 3.75%, how to coordinate downsizing with Treasury bond repurchases, and whether to stick to the 2% inflation target.

The minutes of the July Federal Reserve meeting showed that several officials advocated a 25 basis point increase in interest rates; at the same time, the measures led by Walsh to reduce forward-looking guidance and shorten policy statements have raised policy uncertainty. Goldman Sachs estimates that strengthening central bank communication will significantly reduce interest rate volatility by about 10% over the next year, so if Walsh continues to be vague, investors may “punish silence” by demanding higher term premiums. Even if the Federal Reserve does not raise interest rates, long-term US bond yields may continue to rise.