Jackson Hole Becomes a Key Battle for US Bonds, Bank of America Warns: If Waller Does Not Send a Rate Hike Signal, 30-Year Yield May Soar to 5.5%

Federal Reserve Chair Warsh is about to make an appearance at the Jackson Hole Economic Symposium, which the market considers the most critical risk event currently influencing US Treasuries and the US dollar. Against the backdrop of the Treasury increasing long-end bond buybacks and persistent pressure on the dollar, whether Warsh can send a clear anti-inflation signal will directly determine the trajectory of the 30-year US Treasury yield.

According to Wind Trading Desk, citing an August 24 research report by Bank of America, market expectations for Warsh's speech have quietly shifted—the sustained rebound in the bond market is forcing this typically forward-guidance-averse Federal Reserve Chair to change his communication strategy. Bank of America strategists Mark Cabana, Stephen Juneau, and Alex Cohen warn that if Warsh fails to clearly elaborate on the inflation outlook and the monetary policy reaction function, the 30-year Treasury yield could quickly test 5.5% or even higher, and the dollar would face renewed downward pressure.

Barclays economists Marc Giannoni and others similarly pointed out in a report released on August 21 that although Warsh is unlikely to provide specific interest rate path guidance, the market will be watching closely to see if he makes a clear statement that if inflation fails to improve, the Federal Reserve is willing to resume rate hikes. Barclays believes there is over a 50% chance Warsh will make such a statement, which will help strengthen the reaction function currently priced into the market.

The Jackson Hole Economic Symposium is an annual policy conference hosted by the Kansas City Fed, bringing together global central bank officials, policymakers, academics, and economists. This year's event is being held from August 27 to 29 with the theme "Financial Innovation: Implications for Payments and Policy." Warsh's speech is scheduled for 10:00 AM ET on August 28 (10:00 PM Beijing time), and historically there is no public Q&A following the speech.

Bank of America points out that the market places extra emphasis on Jackson Hole for two reasons: First, the 7-week gap between the July and September FOMC meetings is the longest of the year, during which two sets of nonfarm payrolls and CPI data will be released—historically, the market has viewed this as a window for the Federal Reserve to pre-signal policy intentions; Second, liquidity is typically thin in the summer, so any statement may trigger more dramatic price swings.

What makes this year's meeting unique is that both the bond market and the dollar are already in a vulnerable state. Last week, the US Treasury announced an increase in long-term bond buybacks—on the day of the announcement the dollar slumped, which Bank of America sees as reflecting the government's concern over rising long-end yields. Coupled with the previous dovish FOMC meeting in July and weaker US economic data in August, the dollar has faced multiple headwinds in succession.

Warsh has long resisted forward guidance. At the July FOMC press conference, he stated that the direction for his Jackson Hole speech had not been determined, listing two possibilities: one, to focus on macro long-term issues such as productivity, demographics, and the global economy; two, to directly address near-term policy direction for September to December.

Bank of America believes the market's "forcing hand" is altering this choice. The report quotes boxing champion Mike Tyson—"Everyone has a plan until they get punched in the face"—noting that the bond market's repeated "punches" have made it difficult for Warsh to continue avoiding policy statements.

Bank of America strategists anticipate that Warsh will reference the recent communication styles of Fed officials Paulson and Cook, articulating policy paths under two scenarios: If the current disinflation trend continues, maintain the current stance; if inflation remains elevated, clearly signal readiness to resume rate hikes. Bank of America believes this framework can effectively communicate the reaction function without making specific path commitments.

Barclays holds a similar view, pointing out that Warsh may also comment on the forward guidance system itself—he has consistently criticized forward guidance for constraining policy flexibility and causing past policy errors, and established a dedicated review group after taking office. In addition, Warsh may provide more insights on the Fed's balance sheet policies. However, given already elevated long-end yields, any further comments on shortening portfolio duration must be made with particular caution.

Bank of America gives two clear market scenarios based on the content of Warsh's speech.

Scenario One: Warsh Signals Rate Hikes as Expected. If he clearly states readiness to resume rate hikes should inflation not fall, Bank of America anticipates: The probability of a rate hike at September's FOMC will rise from the current 9 basis points priced in to 12.5 basis points (roughly a 50-50 probability); total rate hike pricing for this cycle will rise from approximately 40 basis points to nearly 50 basis points; nominal and real yield curves will flatten; and the dollar could recover some losses.

Scenario Two: Warsh Avoids Policy Statements. If the speech focuses on themes like productivity or AI-driven disinflation, or deliberately avoids near-term policy guidance on the grounds of "not giving forward guidance," Bank of America warns the market may interpret this as dovish, further steepening the curve bearishly. The 30-year Treasury yield could quickly break above 5.5%, and the dollar would face another round of selling pressure.

Bank of America highlights a worrying signal in the dollar's recent decline—following the buyback announcement, the dollar fell even as the US-foreign rate differential widened. This is a typical sign of risk premium expansion, reflecting market concern over "fiscal dominance" risks. Should Warsh's statement further fuel doubts about the Fed's monetary policy independence, the "dollar depreciation" camp will have additional ammunition.

Historically, the impact of Jackson Hole on the US Treasury market has been limited. Bank of America statistics show that since 2010, the 10-year Treasury yield usually declines slightly after the conference, but typically reverses within 10 trading days. The year 2025 was an exception—when the Fed's emphasis on labor market downside risks fueled a sustained yield decline and a notable dollar depreciation.

The same historical pattern holds for the forex market: The dollar usually weakens slightly around the conference, but typically recovers in the following weeks; in the Powell era, the dollar's average response to Jackson Hole has been larger. The most prominent recent example is 2022—when Powell delivered a strongly worded anti-inflation speech, triggering a sharp rise in rates and a strengthening dollar.

Bank of America notes that this year's environment is different from previous Jackson Hole meetings: The Treasury has already stepped in to address long-end yields, so the ball is now in Warsh's court ("Bessent acted, Warsh now holds ball"). At this critical moment, if Warsh fails to meet the market's minimum expectations on policy credibility, this year's symposium could become one of the most consequential for markets in recent years.