Federal Reserve Chair Kevin Warsh is set to deliver his first Jackson Hole keynote at 10:00 a.m. ET on Friday (5 p.m. Riyadh time), with investors watching closely for clues on inflation, interest rates and the Fed’s policy framework. The Kansas City Fed confirmed that Warsh’s remarks will be streamed at that time.

The stakes are unusually high. Inflation remains well above the Fed’s 2% target, policymakers are divided over the next rate move, and long-term Treasury yields have remained elevated. Markets are currently pricing roughly a 35% probability of a September rate hike, according to Reuters.

For Warsh, however, tonight may be more about answering a bigger question: How exactly will the Fed react to persistent inflation and rising long-term yields?

1. Will Warsh finally clarify the Fed’s reaction function?

This is likely to be the most important signal.

Since taking office, Warsh has deliberately reduced traditional forward guidance, arguing that uncertainty makes detailed policy signaling less useful. But the approach has also left markets with fewer clues about what would trigger a rate hike or cut.

Tonight, investors will therefore listen for three things:

• How the Fed defines underlying inflation
• What combination of inflation, employment and financial conditions would trigger policy action
• Whether persistent inflation could justify another rate hike

A clearly hawkish framework could push rate-hike expectations higher and pressure long-duration assets. Conversely, if Warsh emphasizes that inflation pressures may prove temporary and keeps the door open to easing, Treasury yields and the dollar could retreat while equities gain.

The key point: Warsh does not necessarily need to give forward guidance. The market simply needs to understand the rules behind his decisions.

2. How will he address the bond market and Treasury policy?

The second major question concerns long-term Treasury yields.

The 10-year Treasury yield has recently hovered around the 4.6%-4.7% area, while the 30-year yield remains around 5.2%. Investors are increasingly debating whether elevated long-term yields reflect inflation risks, fiscal concerns or a higher term premium.

That makes the relationship between the Fed and Treasury Secretary Scott Bessent particularly important.

Bessent's efforts to support longer-duration Treasury prices have raised questions over how much the Treasury market should be influenced by fiscal policy versus market forces. Warsh may not directly criticize Treasury policy, but investors will be looking for clues on whether the Fed considers rising long-term yields:

A. evidence of persistent inflation and therefore a reason for tighter policy, or

B. primarily a reflection of fiscal and term-premium pressures that monetary policy should not attempt to suppress.

A clear distinction between monetary policy and debt management could help stabilize the bond market. A vague answer could leave investors demanding an even higher risk premium.

3. Will Warsh reveal more about his Fed reform agenda?

Warsh has been reshaping the Fed's approach to policy communication and economic analysis. The Jackson Hole speech could provide an early glimpse into how his new framework will work.

Markets may hear more about alternative inflation measures, the role of financial conditions and how the Fed intends to communicate without relying heavily on traditional forward guidance.

But investors should not expect a fully developed new policy regime tonight.

The more likely outcome is a framework rather than a roadmap: Warsh may explain what the Fed will focus on without telling markets exactly what it will do at the September meeting.

What Could Move After the Speech?

History suggests that the market reaction to Jackson Hole is highly dependent on the tone of the Fed Chair's message, rather than the event itself.

Over the past decade, the S&P 500 has gained on 70% of Jackson Hole speech days, with a median move of +0.39%. One week later, the index was also higher in 70% of cases, while the one-month record was more balanced at 50%.

The clearest example came in 2022, when Jerome Powell delivered a notably hawkish speech warning that fighting inflation would likely bring economic pain. The S&P 500 fell 3.37% on the day, remained down 3.29% a week later, and was almost 10% lower one month later.

By contrast, more reassuring or less hawkish speeches have often been followed by relatively positive equity performance. This suggests that Warsh's tone and policy framework may matter more than any single rate signal tonight.

The market reaction will probably depend less on whether Warsh sounds simply "hawkish" or "dovish" and more on whether he reduces uncertainty.

Stocks to watch

NVIDIA Corporation(NVDA.US) and other high-growth technology stocks remain particularly sensitive to changes in Treasury yields because higher discount rates can pressure valuations.

Apple Inc.(AAPL.US) and Microsoft Corporation(MSFT.US) could also react through the broader Nasdaq and large-cap growth trade.

For more rate-sensitive exposure, investors could watch 20+ Year Trsy Bond Ishares(TLT.US) alongside financial stocks such as Jpmorgan Chase(JPM.US).

Gold is another key market signal. SPDR Gold(GLD.US) could benefit if Warsh fails to restore confidence in the Fed's inflation-fighting framework, particularly if concerns over fiscal sustainability and long-term inflation remain elevated. Gold was trading around $4,560-$4,600 ahead of the speech after recently approaching $4,700.

The Bottom Line

Tonight's speech is more about whether Warsh can give markets a credible framework for navigating three conflicting forces: sticky inflation, elevated long-term yields and growing fiscal pressure.

If he succeeds, volatility in bonds, the dollar and equities could ease. If he remains deliberately vague, the market may be forced to price the uncertainty itself—potentially keeping pressure on long-duration assets and supporting gold.

For markets, the most important sentence tonight may not be what Warsh says about September. It may be what he says about the rules for everything that comes after it.