Aug 28, 2026 · 6 min

Jackson Hole tests the Fed’s communication strategy

UBS On-Air: Paul Donovan Daily Audio 'Marshmallows and monetary policy'

Markets are waiting for policy signals, but Donovan argues that ambiguous guidance can increase uncertainty and raise financial-market risk premiums.

3 key takeaways

1Jackson Hole traditionally offers strategic monetary-policy guidance rather than immediate tactical direction.
2Markets are parsing the gathering for clues about the future path of U.S. monetary policy.
3Donovan argues that unclear communication creates uncertainty and calls for a more sensible policy framework.

Don't miss

Donovan’s sharpest argument is that a “you figure it out” communication style can itself raise financial-market risk premiums.

The brief

Paul Donovan opens from the Jackson Hole gathering, where central bankers have traditionally offered strategic guidance while markets await clues about U.S. monetary policy.

The tension is between what policymakers intend to signal and what markets can confidently infer, making every comment potentially consequential for expectations.

Donovan criticizes a “you figure it out” approach attributed to Fed Chair Warsh, arguing that unclear communication creates unnecessary uncertainty.

His broader case is that ambiguity raises the risk premium in financial markets, strengthening the argument for a more sensible policy framework.

What was said on this episode

11 statements · 1 positive · 6 negative · 2 mixed · 2 neutral

Paul Donovanon Jackson HoleNeutral0:27
Jackson Hole traditionally provides strategic rather than near-term tactical policy guidance.
“Jackson Hole has traditionally been more strategic than tactical.”
Listen at 0:27
Paul Donovanon US Federal Reserve communicationNegative1:06
Fed communication uncertainty raises financial-market risk premiums and harms economic growth.
“creating uncertainty around this creates a risk. And risk creates a risk premium in financial markets that is an unnecessary economic cost and a negative impulse to growth.”
Listen at 1:06
Paul Donovanon Artificial IntelligenceNegative1:43
Artificial intelligence has limited effects at best on economy-wide productivity.
“technology has a limited effect at best on economy-wide productivity”
Listen at 1:43
Paul Donovanon US brain drain and lower immigrationNegative1:48
US brain drain and lower immigration will offset AI benefits and future growth.
“the potential for a brain drain from the United States and lower immigration will also act as counterweights. to any AI benefits and future growth.”
Listen at 1:48
Paul Donovanon central-bank treatment of one-off inflation shocksPositive2:11
Looking through one-off inflation shocks would make monetary policy more benign.
“If the Fed or other central banks will look through these effects, then monetary policy is likely to be far more benign.”
Listen at 2:11
Paul Donovanon inflation expectationsNegative2:20
Relying heavily on inflation expectations would increase risks because surveys are less reliable.
“If central banks are going to fetishize inflation expectations, which, like most survey-based evidence, have become more dramatic and more unreliable in a world dominated by social media, there would then be higher risks.”
Listen at 2:20
Paul Donovanon US partisan inflation expectationsNeutral2:51
Democrats expect nearly twice next year’s inflation rate as Republicans.
“Democrats expect inflation next year will be almost double the rate that Republicans expect.”
Listen at 2:51
Paul Donovanon low-income householdsNegative3:08
Low-income households have higher inflation expectations.
“Low-income households expect more inflation”
Listen at 3:08
Paul Donovanon younger peopleNegative3:28
Younger people have higher inflation expectations.
“Younger people also have higher inflation expectations.”
Listen at 3:28
Paul Donovanon Bank of Japan interest ratesMixed3:59
Japan’s inflation data supports raising rates but not urgently.
“The data supports the idea of moving to raise interest rates without making a compelling case for an urgent rate increase.”
Listen at 3:59
Paul Donovanon Spain, France, and Belgium inflationMixed4:16
Spain, France, and Belgium headline inflation is expected to rise while core inflation stays stable.
“There is some expectation for a pickup in the headline rates with broadly stable core inflation measures.”
Listen at 4:16

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.