Fed Chair Kevin Warsh gives his first keynote speech as chair at the Jackson Hole Economic Policy Symposium on Friday, Aug. 28, at 10am ET. At its July meeting, the Fed's rate-setting committee voted 9-3 to hold rates steady at 3.5%-3.75%. Three regional bank presidents dissented in favor of a hike, the most one-directional dissent since 2016. Inflation came in hotter than expected in July, at 3.7% on the Fed's preferred gauge, versus a 2% target. Days before the speech, the Treasury Department said it would sharply increase the size of its long-term bond buybacks.

1. The Hawks (Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, Dallas Fed President Lorie Logan)

Inflation is stuck above target and moving the wrong way, so the Fed should raise rates now.

Three regional Fed presidents wanted a hike, not a hold. Hammack, Kashkari, and Logan all dissented in July for a quarter-point increase, the most one-directional dissent on the committee since September 2016.

Two non-voting officials say they'd have backed a hike too. Kansas City Fed President Jeffrey Schmid and St. Louis Fed President Alberto Musalem, neither a voting member this year, said as much after the meeting.

They point to inflation moving the wrong way. The Fed's preferred inflation gauge rose 0.2% in July, double what economists expected, holding the annual rate at 3.7% instead of easing toward target.

2. The Centrists (Fed Governors Christopher Waller and Michael Barr, Richmond Fed President Tom Barkin)

The job market is too weak to justify choking off growth with a hike.

Every governor on the Fed's board sided with holding rates, not hiking. Waller and Barr both voted to hold in July, and no sitting governor joined the hawks' dissent.

They point to a labor market that's cracking, not overheating. July payrolls fell by 23,000, and prior months got revised down by another 103,000.

Richmond Fed President Tom Barkin put it plainly. He called the July jobs report "very consistent with how I've been seeing the labor market, which is, it's not loose, it's not tight, it's sort of been a weak balance."

3. The Economists Warning Treasury Is the Bigger Problem (Wharton's Jeremy Siegel, strategist Ed Yardeni, former St. Louis Fed President Jim Bullard)

The hike-or-hold fight might not matter much if Treasury can move yields on its own.

Treasury moved days before Warsh's biggest speech as chair. It raised its per-operation buyback size from a $2 billion maximum to at least $4 billion, aiming to push down the 10-year Treasury yield regardless of what the Fed decides.

Two economists say this muddies the signal markets rely on. Wharton's Jeremy Siegel called it the "Bessent twist," and strategist Ed Yardeni said the move will "muck up things" for the Fed's coming decisions.

Former St. Louis Fed President Jim Bullard warned about where this leads. He said Bessent's talk of "intimate cooperation" with the Fed is "usually associated with bad outcomes."

Warsh helped set this fight up himself. For years, he argued the Fed should give Treasury more say over its own balance-sheet decisions. Critics now say that argument opened the door to the very encroachment he's facing.

Where This Lands

The hawks want a hike because inflation is still running at 3.7% against a 2% target. The centrists on the Fed's board want to hold because the job market just posted a weak report with steep downward revisions. Markets are pricing roughly 40% odds on a September hike, rising toward 70% by December. There's a second fight layered on top of that one: whether Treasury's bigger bond buybacks, running Sept. 9 through Nov. 4, will quietly set borrowing costs no matter what Warsh says Friday.

Sources