Waiting for Warsh

So to this week’s finale. Kevin Warsh’s first Jackson Hole as chairman this afternoon. And the market has prepared itself with an elegant pause, or is it a confused, awkward hesitation? Doing almost nothing. Stocks flat, gold flat, the dollar pinned at 99 on the DXY, the two-year stuck at 4.2%.

No more bets, please; the wheel is spinning. The silent man is about to speak.

The theatre is quiet; the entire financial world is holding its breath for guidance from the one central banker who has built his reputation on refusing to give any.

Warsh thinks markets should tell the Fed what to do, not the other way around. Like the tramps under the tree, the plot today is the waiting. And the thing everyone is waiting for may, when it arrives, say nothing at all. A profound moment, or just perhaps another of our times’ great absurdities?

Apollo’s Torsten Slok put the risk in a sentence. If Warsh gives “no framework guidance,” the danger is “a much higher move in long rates.” HSBC frames the speech more hopefully, as a chance to “contain the selloff in long-end Treasuries” by clarifying the Fed’s reaction function and compressing the uncertainty premium.

After a week in which the money-supply gauge flashed and a hot PCE print confirmed it, a December hike is now a better bet than 70%; a chairman who says nothing hands the microphone to the term premium.

And he may do exactly that. Preview the early findings of the Fed’s five new task forces on communications, the balance sheet, the data, productivity, and the inflation framework. While the market came hoping for a verdict, it might have to make do with an agenda.

So while everyone stares at the stage in Wyoming, let’s take a look at two places where the real play is running, neither of which is waiting for Warsh.

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From the IMF, MD Kristalina Georgieva said “We have literally a tug of war between the negative supply shock from the Middle East and the positive demand shock from AI.” And AI is winning. It now accounts for roughly a third of recent US growth, and it is rocketing Asian exports, up 63% in Korea, a third in Taiwan, a quarter in China, 22% in Japan.

The world has taken a shut Strait of Hormuz in its stride in part because the data-centre boom is hauling so strongly in the other direction. Which, while impressive, also means the entire global economy is balanced on a single rope.

Fine, until you recall what Nvidia’s own margins hinted at, and what Moody’s Analytics’ Stefan Angrick said: “maybe we are just living on borrowed time.” Growth, as the Conference Board’s Max Zenglein put it, “is becoming much more narrow.”

While waiting for Warsh, the United States is, we are told, negotiating to take a major stake, reportedly a hundred-year lease, in Venezuela’s oilfields, months after Trump ousted Nicolás Maduro and took control of the country’s oil sales. Venezuela is weighing whether to quit OPEC. Its leaders won’t want to follow Maduro into US custody. I suspect they know what is expected of them.

We know you can’t print a barrel of oil. What’s the next best thing? Buy (or better, sequester) a failed petro state for the next century. The dollar-as-weapon and the things-you-can’t-print just meet in Caracas.

And back in J Hole, they’re still waiting for Warsh.

Elsewhere in oil, Gulf exports have, we are told, recovered to two-thirds of pre-war levels, Iran and Oman have struck a revenue-share over the strait, and CENTCOM’s Admiral Cooper says “the lanes are open, momentum is building.” He should know, but beware the fog of war.

Ship-trackers put actual Hormuz traffic at 5-to-15% of normal; but trackers can be switched off, of course. There have been seventy incidents and nineteen dead seafarers since the war began; and Iran still insists any reopening runs through its own list of conditions.

“Open” remains a matter of opinion, and while Brent eased toward $88, the gauge still reads more shut than open. Hormuz remains a shooting gallery, which means risk; which means slower transits and a risk premium with a price tag.

However, the resilience is real. The global economy has absorbed a closed strait, a trade war and a bond tantrum and kept going; Yardeni reads Nvidia’s broadening boom in typically positive fashion. Non-hyperscaler revenue up 138%, outpacing the mega-caps as a real vote of confidence in US economic and stock market health; and Kansas City’s Jeff Schmid says policy isn’t restraining the economy.

The tug-of-war has a clear winner. But the contest isn’t over, and the winning side can yet tire.

So the week ends where it was always heading. The market frozen in front of a stage, waiting for a man who believes silence is a virtue. Elsewhere, the real play continues its record run. A world balanced on the AI rope, and an empire buying the oilfields it cannot print.

Warsh speaks at 3 pm London time, and will tell us what he intends to do without, of course, telling us.

Everything is proceeding normally.

Good luck out there and have a good weekend.

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