The stakes are high as Kevin Warsh is set to give his first major speech as Fed Chair

Federal Reserve Chairman Kevin Warsh is set to deliver a keenly awaited speech on Friday at the annual gathering of economists and policymakers at Jackson Lake Lodge in Wyoming — and the stakes are as high as the surrounding Teton mountains.

Investors were disappointed last month when Warsh promised to curb stubborn inflation but offered no specifics about his strategy. Many are hoping for more clarity on Friday at a gathering that Fed chairs have traditionally used to reach a wider audience with their thoughts about the economy.

"I'd like to hear him be a bit more communicative," says Kathy Bostjancic, chief economist at Nationwide. "We're not talking forward guidance. Just some understanding of how he views the inflation dynamics right now."

Prices have been climbing significantly faster than the central bank would like — 3.7% in the 12 months ending in July, according to the Fed's preferred yardstick. That's down slightly from the 4.1% reading in May, but well above the Fed's 2% target.

Investors are still trying to figure out Warsh

After years of elevated inflation, Warsh has promised to bring prices under control. But investors are nervous about his reluctance to offer a roadmap. The Fed chairman, who took charge of the central bank in May, is deliberately vague, saying investors and businesses should watch what's happening in the economy, not in the policymaking corridors of Washington.

Some economists think it's likely that Warsh will stick with a high-altitude approach in Jackson Hole — his first address to the gathering as Fed chair — rather than offer a sea-level forecast of what we can expect from the central bank in the next few months.

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"If I could, in the high mountain air in Jackson, Wyoming, I'd like to also frame the big questions," Warsh said last month, after he and his Fed colleagues voted to hold interest rates steady. "What's really happening with productivity? What's really happening with demographics? What's really happening to the global economy amid the shocks?"

Investors currently see about a one in three chance that the Fed raises its benchmark interest rate at its next meeting in mid-September.

Warsh is keeping things close to his vest

Warsh declined to preview his remarks when he met with reporters last month.

"I look at it like a blank piece of paper right now," Warsh said. "I haven't made a decision whether it's going to be a big-picture speech or more of a set-up of all the action that we're going to have between September and December."

Warsh is bullish about the prospects that the artificial intelligence boom will help to curb inflation in the years to come. But it's having the opposite effect in the short run, raising prices for construction crews and computer memory chips.

"In the near term at least, there's clear evidence that AI is an inflationary force," says Matthew Luzzetti, chief U.S. economist at Deutsche Bank. "But there's hope that over the medium term, if we look several years out, it will begin to be a disinflationary force by lifting productivity growth, making the economy far more productive, and therefore putting downward pressure on prices as we look ahead."

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