LONG (BUY)
TP
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โบ Today is Kevin Warshโs time to shine moment, as the new Fed Chair delivers his first speech at the Fedโs annual gathering in Jackson Hole.
โบ We expect Warsh to want to be perceived as a determined inflation fighter and therefore to start his speech on the hawkish side. This could initially strengthen the USD during the speech before investors analyze his comments more closely and find only limited clear guidance on the future path of monetary policy. In reality, it would be important for Warsh to show that the Fed under his leadership is determined to keep inflation under control.
โบ Views within the FOMC and the Fed remain divided on the need for higher rates. In reality, current economic data and the possibility of further declines in oil prices over the coming weeks would allow for a wait-and-see stance.
โบ It would be important for Warsh to signal that the Fed is close to a rate hike and will act immediately if there are signs that the disinflation trend is stalling. A small rate hike, or even just announcing one, would do little to restrain the US economy but would send a clear signal to the market. I would therefore strongly recommend that Warsh announce that the Fed is ready and determined to tighten monetary policy and that the next step would be a rate hike if the data do not suggest that inflation is cooling further.
โบ We are going LONG USD/JPY in the short term, with the pair still trading significantly lower following the record combined intervention from Tokyo and the US Treasury Department.
โบ Ultimately, I expect the market to remain confused after another Warsh speech in which he raises more questions than he actually answers.
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