BofA’s Hartnett Sees Warsh On Yield Tightrope At Jackson Hole
Federal Reserve Chair Kevin Warsh’s Jackson Hole speech could flatten the US yield curve, bolster risk appetite and support the dollar — if he gets it right, according to Bank of America Corp. strategists.
To achieve a “bull success,” Warsh will have to reinforce his inflation-fighting credentials to keep short-term yields in check, while signaling support for Treasury Secretary Scott Bessent’s efforts to contain longer-term borrowing costs, strategists led by Michael Hartnett wrote in a note.
A “policy failure,” however, could send yields above levels seen before Bessent communicated his buyback campaign in longer-dated Treasuries earlier this month. That could weigh on the dollar and favor defensive stocks over cyclicals and other assets sensitive to higher long-term yields, the strategists said.
The much-anticipated speech by Warsh — who has previously been criticized for sparse guidance on how he plans to bring inflation back closer to the 2% target — comes at a delicate time for equity investors. They have kept faith even as long-term borrowing costs earlier this month spiked to levels seen last two decades ago, with the S&P 500 Index less than 1% away from its closing record.
Hartnett said the market’s conviction on a range of bullish scenarios remains intact — including no slowdown in macroeconomic indicators, no interest-rate hikes, no cuts to artificial intelligence spending and no Democratic Party election victory in November’s midterms.
Still, US stocks recorded outflows of $4.4 billion in the week through Aug. 26, the first outflow in five weeks, BofA said, citing EPFR Global data. Money instead went into Japanese stocks, while investment-grade bonds extended their streak of inflows to 21 weeks.
This article was provided by Bloomberg News.
