Yields Respond to Kevin Warsh's Jackson Hole Speech

**SPEAKER_1** (0:02)
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**Paul Sweeney** (0:27)
Let's check in with a professional who does the stuff for a living on a global basis. Kristina Hooper, she's a chief market strategist for the Man Group. Kristina, I'd love to get your thoughts. We heard from Fed Chairman Warsh last week at Jackson Hole. I'd love to get your thoughts on what you heard and maybe what do you think it means for the markets?

**Kristina Hooper** (0:48)
Well, I think that Chair Warsh was sufficiently vague, which is what I had expected, but he certainly reiterated how hawkish he is, how intolerant he is of above-target inflation. However, we're getting to the point now where he's likely going to need to show that he is actually tough on inflation. But thus far, he has the credibility, markets have given him credibility for this, and I think it's certainly sustainable for a bit longer before he really is forced to act. He also said, of course, that he thinks the US economy is quite resilient. So all signs point to a hike in the near term. So those were my key takeaways.
I don't think this was a huge speech. Sometimes Fed chairs use the Jackson Hole speech as an opportunity to launch some monumental new policy or signal a big change. I think certainly there are significant changes of Fed and he alluded to some of them, including less communication, certainly forward guidance. And I think that is likely to result in significantly more confusion for markets.

**Tom Keene** (2:08)
Well, he did say no more forward guidance, but then it seemed like at the end of his speech, he actually did give forward guidance. Like you said, he seemed very hawkish. He talked about how inflation was a problem, how he had faith in the job market.
And the market seemed to be responding as if it were forward guidance. Is there a meaningful difference?

**Kristina Hooper** (2:28)
Well, that's a great question.
Not that meaningful a difference, but I think that it will seem like more of a difference as we move forward. Yes, this is part of his introduction to the world as the new Fed chair, is to make sure they know he thinks that where inflation has been for the last several years is not acceptable. But I think going forward, there will be more nuances and we'll realize where there are deficits because we're no longer getting forward guidance. And we'll likely see it in market volatility, including bond market volatility.

**Paul Sweeney** (3:07)
Kristina, we're seeing the 10-year Treasury yield, 4.72%, obviously much higher than we've seen it over the recent past year.
Higher for longer. A, do you believe in that higher for longer thing? And if so, is that a challenge? Is that a headwind for equities?

**Kristina Hooper** (3:24)
Well, I absolutely believe we'll be higher for longer.
Because there are so many forces that are conspiring to keep yields elevated on the long end, not the least of which, of course, is an enormous amount of debt that's growing every day. And I do think this could be a very significant headwind for equities, especially the long duration equities like technology. So we're actually at a crossroads right now where I think the environment could get materially worse for equities because it doesn't have that underpinning of lower rates.

**Tom Keene** (4:04)
You think that's true even with all of the excitement around AI and markets having continued to set records for months and months and months?

**Kristina Hooper** (4:15)
I do think that. Certainly, they will go through periods of excitement. But the reality is that we haven't seen that much in the way of demonstrable change as a result of AI.
This lower inflation environment, for example, that I think many hope we'll get to and we're likely to get to at some point has not arrived as a result of AI. This is all about now spending on AI, which is of course inflationary in the shorter term. Of course, again, we can't ignore those bigger issues like the incredible increase in debt that we're seeing. We have a much larger fiscal deficit than had been anticipated because of the war in Iran, and that shows no signs of going away anytime soon.

**Paul Sweeney** (5:05)
Kristina, what's the fixed income call here? I mean, again, you can just clip some of these government coupons in 430 on the short end of two years, 10 years, 470, 520 on the 30 Those are pretty nice coupons here. Do I need to take credit risk above and beyond that?