September 4, 2026
Jackson Hole Special
The First Rule of Forward Guidance Is That You Don’t Talk About Forward Guidance.
The First Rule of Forward Guidance Is That You Don’t Talk About Forward
Chair Warsh’s Jackson Hole debut delivered a hawkish message: inflation remains above target, the U.S. economy continues to show resilience, and financial conditions are difficult to characterize as restrictive.
His reluctance to provide forward guidance may signal a return to a more data-driven policy framework, placing greater weight on realized economic outcomes than on Fed signaling.
The experience of earlier Fed regimes suggests that less policy transparency can alter how markets process information, react to economic developments, and price future policy decisions.
Recent inflation and growth trends present a nuanced backdrop for monetary policy, increasing the importance of realized economic outcomes as markets navigate a less guidance-heavy environment.
On Friday, August 28, Fed Chair Kevin Warsh made his Jackson Hole debut with a speech that markets had been waiting for precisely because he has resisted giving them what they now expect from the Fed: explicit forward guidance. In a conference focused on financial innovation, payments, and policy, Warsh stayed close to the official theme while also advancing a broader message about how the central bank should communicate. Hence, we wanted to revisit the main takeaways from his remarks, compare his approach with earlier Fed communication regimes, and consider what a less guidance-heavy Fed could mean for monetary policy expectations and asset-class reactions.
Saying that Chair Warsh’s intervention was the most anticipated item on Friday’s Jackson Hole agenda is not an exaggeration. After two Federal Open Market Committee (FOMC) meetings at the helm, Warsh’s refusal to provide forward guidance and his instruction that markets should “play the ball and not the referee” left investors scanning his speech for any clue about the central bank’s next move. One notable omission was any update on the task forces and their progress. Instead, market participants and attendees received a fuller assessment of the economy and a clearer sense of Warsh’s communication philosophy.
Throughout the speech, Warsh reinforced the FOMC’s commitment to the PCE target, stating that 2% was a “firm, fixed target”, and that “the responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank”. At the same time, he was explicit that underlying inflation trends had not improved meaning-fully, even if summer CPI and PCE readings were encour-aging. For Warsh, the FOMC must be confident not only that inflation is moving toward its objective, but that it is doing so “at sufficient speed.”
Adding to the hawkish tone of the speech were Warsh’s comments on the state of the U.S. economy. The Fed Chair said he was impressed by the economy’s overall performance, which appeared to have strengthened, underpinned by resilience from both Main Street and Wall Street. To that extent, Warsh contrasted the rapid growth in business capital expenditures with profits from S&P 500 firms, noting that expectations for both are running quite high.
Regarding financial conditions, Warsh gave the final hawkish statement by affirming that he would be “hard pressed to describe broad financial conditions as restric-tive.” To that extent, he highlighted the resiliency of real consumer spending and the positive side of the Fed’s mandate – the strength observed in the labor market.
A constant element in Warsh’s remarks was his distancing from forward guidance, even though he dedicated a full section of his speech to it. He argued that the period when forward guidance was necessary for the FOMC has passed. In his view, guidance can bind policymakers to earlier interest-rate commitments and reduce their freedom to make the right decision as conditions change. That logic also explains his reluctance to send explicit signals to financial markets. Rather than having markets search for direction from the Fed, Warsh argued that the Fed needs clear, unfiltered signals from markets, with investors assuming agency and drawing conclusions from their own expectations. He warned that too much guid-ance can create a hall-of-mirrors problem, leaving both policymakers and market participants less prepared for unexpected turns and more exposed to policy mistakes.
In all, the market interpreted Warsh’s inflation rhetoric as hawkish. The Treasury curve initially flattened as short-end yields rose sharply and investors priced in a higher prob-ability of a rate hike at several of the upcoming meetings. At the time of the speech, longer-end yields declined, which could be read as a sign that markets believed a more hawkish Fed would help restrain future inflation. Since then, however, the long end has resumed its bearish trend, likely influenced by external dynamics and higher term-premium pricing, and now looks more consistent with the broader message of a more hawkish Fed stance.
Given that the current Warsh Fed has been compared with the Fed from the Greenspan era, we wanted to take a deeper dive into the similarities between the two periods and how financial assets and markets fared during the Greenspan regime.
While markets have grown used to receiving forward guidance from the Fed Chair over the past two decades, that was not always the case. To borrow from Fight Club, the novel later made famous by the 1999 movie, it seems Kevin Warsh may have joined a new kind of forward guid-ance club, one whose first rule is simple: don’t give forward guidance.
Since the Bernanke era, and arguably beginning in the final years of Alan Greenspan’s tenure, investors have become accustomed to receiving regular hints about how the Fed sees growth, inflation, labor markets, and the likely path of monetary policy. Markets learned to dissect every statement, speech, press conference, and dot plot for clues about where rates might be headed next. But if a Warsh-led Fed embraces a more traditional philosophy, that era of abundant guidance may be coming to an end, at least for a while.
Since its creation in 1913, the Federal Reserve has been led by some of the most influential policymakers in American economic history. Yet explicit communication about future policy is surprisingly recent. It was only in February 2000 that the Fed added a formal “balance of risks” section to its post-meeting statements. A more meaningful shift came in August 2003, when the Greenspan Fed signaled that policy accommodation could remain in place for a “consid-erable period,” marking one of the earliest forms of modern forward guidance. What started as a response to concerns about disinflation eventually became a core policy tool. Under Bernanke, especially after the Global Financial Crisis, forward guidance became a pillar of monetary policy. Yellen refined it through a strongly data-dependent frame-work, while Powell expanded it further through unprece-dented transparency and outcome-based guidance.
Alan Greenspan, who chaired the Federal Reserve between 1987 and 2006, famously said: “If I seem unduly clear to you, you must have misunderstood what I said.” Whether entirely serious or not, the quote perfectly captured his communication style. Greenspan intentionally spoke in a dense, nuanced, and often difficult-to-decode way. The goal was to prevent markets from overreacting and pricing in policy moves before the FOMC had even decided. After all, if the Fed Chair openly says the economy is running too hot and rate hikes are likely around the corner, investors immediately sell bonds, yields rise, finan-cial conditions tighten, and part of the policy work gets done before the Fed even votes. The downside was that markets became borderline obsessive/paranoid in their search for clues. The most famous example was the so-called “briefcase indicator.” Traders convinced them-selves that Greenspan’s briefcase size contained valuable information about future policy decisions. If he showed up carrying an unusually large briefcase, markets assumed he had spent the night reviewing data and preparing argu-ments for a change in interest rates. If the briefcase looked thin, markets assumed policy was likely to remain unchanged. It was almost certainly nonsense, but in a world with very little guidance, even the Chairman’s luggage became a market signal.
If history serves as a guide, what happened during this non-guidance time?
We often hear that the old days were better. Yet before 1994, markets did not even receive the federal funds rate target directly from the Fed. Investors had to infer monetary policy from open market operations, operating with far less information than they do today. Research by Gürkaynak, Sack, and Swanson showed that Fed communication itself became a major driver of asset prices during the 2000s. So, how did different asset classes behave in such an environment?
Fixed income was the asset class most affected by this lack of transparency. Without explicit guidance, investors relied on economic data, speeches, and policy actions to decipher the Fed’s reaction function. The most famous example was the 1994 Bond Massacre. Seeking to contain inflation pressures, the Fed raised the federal funds rate from 3.0% to 6.0% in just one year. The 10-year Treasury yield surged from roughly 5.2% to above 8.0%, generating double-digit losses in long-duration bond portfolios and spilling over into mortgages, emerging markets, and lever-aged fixed-income strategies. While we do not expect rates to double over the next year, the latest Jackson Hole meeting offered a glimpse of a more old-school Fed. With little guidance provided, markets interpreted Warsh’s speech as relatively hawkish, increasing the probability of a rate hike this month. In a less transparent regime, Treasury investors should expect greater volatility and larger policy surprises than those experienced under Bernanke, Yellen, or Powell.
Equities behaved differently as well. Investors were far more focused on growth, productivity, and earnings than on the future path of interest rates. From a corpo-rate finance perspective, a company’s value depends on its ability to generate future cash flows, which are then discounted back to the present using interest rates. All else equal, higher rates reduce the present value of those cash flows and therefore lower valuations. The difference is that, today, markets constantly adjust valuations based on what they think the Fed will do in the future. In a world with little to no forward guidance, investors will likely spend less time interpreting Fed speeches and more time analyzing actual economic and corporate fundamentals. As Warsh noted in Jackson Hole, trends matter. Inflation trends, earnings revisions, productivity growth, and realized policy changes become more important than anticipated rate paths. The result could be a market that reacts later, but more abruptly, as investors respond to policy actions rather than pricing them in months ahead. It could also favor sectors with long-duration cash flows, like technology, as the market narrative shifts away from rate path expectations and back toward innovation, growth prospects, and earnings generation.
For commodities, the story is similar. Prices would likely be driven more by global growth, supply-demand dynamics, geopolitical developments, and manufacturing cycles, and less by day-to-day changes in Fed expectations. The same applies to currencies, where relative growth, inflation differentials, and actual rate moves may regain importance over anticipated policy paths. If history is any guide, the biggest change may not be in returns, but in how markets process information. Investors could move away from asking, “What does the Fed think about the economy?” and back toward the more fundamental question: “What is the economy actually doing?”
With that in mind, what should we expect from the next Fed meeting?
If there is one takeaway from the latest Warsh remarks, it is that, for him, trends matter most. So, ahead of the upcoming September Fed meeting, we evaluated trends in the most recent Summary of Economic Projections (SEP) to read the economic tea leaves.
On inflation, the SEP seemed aligned with Warsh’s take-away: in June, it showed no meaningful improvement; rather, the June projections displayed an increase in the FOMC’s expected PCE by the end of 2026, with the fore-cast skewing higher than the March data. However, long-term trends still point to inflation nearing its target in 2027 and finally converging in 2028, according to the mean of participants from both the March and June observations.
Because the SEP projections are already somewhat dated, we contrasted them with the latest PCE figures to better understand the inflation trend and gauge what it implies for monetary policy. The July PCE data showed inflation remains sticky, with both headline and core PCE still well above the 2% target and services inflation continuing to drive the annual increase, as shown in Graph 1. This trend has dominated since 2021, with services increasingly shaping inflation dynamics as the contribution from nondurable goods has diminished.
The message here is twofold. Inflation remains above target, and even if annual PCE variation is muted, the data do not yet suggest a clean return to 2%. At the same time, the relative stability of core PCE could support keeping rates unchanged at the upcoming Fed meeting.
We did the same exercise for GDP, and the trend we inferred from the SEP points to a slight economic decelera-tion in 2026, with most FOMC participants expecting growth between 2.0% and 2.3% (versus 2.2% and 2.5% in March). Still, long-term projections point to growth stabi-lizing around 2% in both 2027 and 2028.
Contrasting those forecasts with the Q2 GDP reading helps explain why Chair Warsh said he was impressed with the U.S. economy. Personal consumption expenditures have remained resilient since 2021, partially offsetting the drags from net exports and changes in private inventories, as shown in Graph 2. At the same time, recent volatility in net exports suggests trade-related factors have played an outsized role in headline GDP growth, particularly because
of tariff implementation and front-loaded inventory purchases. Fixed investment, by contrast, contributed strongly in both Q1 and Q2, pointing to continued business spending, especially from the fixed non-residential compo-nent tied to the AI expansion cycle. Even so, growth could cool in 2H26 as the Q2 boost from the World Cup and tax refunds fades. For monetary policy, that cooling would argue for rate stability and could support rate cuts if the deceleration became recessionary.
In sum, the first rule of Warsh’s tenure may be that the Fed no longer does the market’s interpretive work for it. His Jackson Hole remarks suggested a central bank that remains focused on above-target inflation, still sees resilience in the U.S. economy, and is increasingly reluctant to pre-commit on the policy path. That combination leaves investors with fewer explicit signals but not necessarily less information. The burden shifts back to the data: inflation trends, labor-market resilience, growth composition, financial conditions, and the SEP’s evolving message. For markets, the result could be a regime with less handholding, more sensitivity to realized economic outcomes, and sharper reactions when the Fed finally acts. If the Powell-era market learned to listen to the referee, the Warshera market may have to play the ball.
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