Jackson Hole Conference Outlook: Walsh's debut, the market's real concern may not be interest rate hikes On August 28th at 10am Eastern Time, which is 10pm Beijing Time, Walsh will give his first Jackson Hole speech since taking office. Of particular note is that over the past month, the macro narrative of the United States has undergone significant changes. This year was originally seen by the market as a 'rate hike observation year'. US inflation has been above the 2% target for five consecutive years. In July, the FOMC ultimately maintained interest rates at 3.50% to 3.75% with a 9-3 vote, and even three regional Fed chairmen voted against it, hoping to continue raising interest rates. But recently, the data has suddenly started to weaken. Non farm employment decreased by 23000 in July, and retail sales also experienced their first decline in nine months. As growth and employment pressures re-enter the market, the previously feared "further interest rate hikes" are rapidly cooling down. The probability of a rate hike in September has dropped from as high as 82% in mid July to the current range of approximately 30% to 40%. So the biggest highlight of Walsh's speech this time is not whether he will announce any new policies, because Jackson Hole was not originally a formal interest rate meeting. What the market really wants to know is: how will Walsh respond to the situation where "inflation has not been completely resolved, but the economy has begun to weaken"? Currently, Wall Street is generally betting that his first speech will be more restrained. In a survey conducted by Bank of America, 53% of fund managers believe that Walsh will give a neutral framework speech, 31% believe that he will lean towards hawks, and only 7% are truly betting on doves. Morgan Stanley even believes that Walsh may intentionally downplay the importance of Jackson Hole, continue the existing policy line, and give the market as few new trading signals as possible. This actually aligns well with the strategy that someone who has just taken over as the chairman of the Federal Reserve would adopt. The most important task for Walsh now may not be to immediately tell the market whether to raise interest rates in September, but more importantly, to rebuild his policy credibility. In the past few years, inflation has consistently exceeded the target, and the most important thing the market wants to confirm from him is actually very simple: if inflation gets out of control again, the Federal Reserve still has the ability and willingness to continue tightening. Therefore, a speech that says nothing may not necessarily lack information. There is another often overlooked dark line here, which is the long end US Treasury bonds. The yield on 30-year US Treasury bonds had previously surged to 5.337%, setting a new high since 2007. After the size of the US treasury bond exceeded 40 trillion US dollars, the financing demand of the Ministry of Finance itself has been very large; At the same time, AI cloud vendors are also crazily issuing bonds and financing to build data centers. Governments, technology companies, and AI infrastructure projects are all competing for long-term funding. Although Besent attempted to stabilize the market by expanding bond repurchases, the effect only lasted for a few days. This means that Walsh is now facing an awkward problem: if he is too hawkish, the market will re trade and raise interest rates, putting pressure on US stock valuations; But if he behaves too evasive about inflation, the bond market may also make its own judgment and directly push up long-term yields. What the market fears the most may not even be Walsh's clear hawkish stance, but rather his entire speech focused solely on financial innovation and payment systems, while deliberately avoiding inflation. If investors therefore doubt the new chairman's determination to control inflation and the long-term sustainability of the US fiscal system. At this point, the yield on long-term bonds may not necessarily decrease, and may even continue to rise due to rising inflation expectations and term premiums. However, gold may still rise as funds begin to seek assets to hedge against the purchasing power of the US dollar and policy credit risks. Therefore, the real area worth trading for Jackson Hole this time is actually the poor expectations.