A couple of years after the financial crisis, Kevin Warsh, Mark Carney, and Donald Kohn laced up their hiking boots and headed out of the hubbub that is the Jackson Hole Symposium. In the wilds of Wyoming, they might have hoped—though couldn’t have known—that one among them would go on to lead the Federal Reserve, and another would become the Prime Minister of his native Canada. At the time, Kohn was the vice chair of the Federal Reserve Board of Governors and, for his part, was unaware that his famously rigorous expeditions had earned the nickname of “death march” among his peers. A little over a decade later, Kohn watched on as Warsh, his close former colleague, invoked the spirit of these hikes in his inaugural speech as central bank chairman at Jackson Hole in August.
“As I learned years ago, you can take two different kinds of hikes on the trails around Jackson Hole,” Warsh opened with. “I can sum up my hikes with former Vice Chairman Don Kohn in two words: I survived. These steely marathon death marches revealed a side of Don I wasn’t ready for.”
“There’s another kind of hike—one I associate with Chairman Ben Bernanke, my old colleague. With Ben, it’s a much more leisurely pace, an easy stroll along the wandering trails at the Rockefeller Preserve. So before setting out, do a wellness check and ask yourself: ‘Is this a Kohn day or a Bernanke day?’”
Kohn had been largely unaware that he would be featured so prominently in the speech, he told Fortune.
Warsh had approached him moments before taking the stage to say he hoped he didn’t mind the reference—a little humor, Kohn believed, to break the tension. He added: “I thought the whole speech was very good and moved in a constructive way, laid out some principles … and then, importantly, discussed the economic situation, which he had refused to do in July.”
Kohn had been largely unaware that he would be featured so prominently in the speech, he told Fortune.
Warsh had approached him moments before taking the stage to say he hoped he didn’t mind the reference—a little humor, Kohn believed, to break the tension. He added: “I thought the whole speech was very good and moved in a constructive way, laid out some principles … and then, importantly, discussed the economic situation, which he had refused to do in July.”
“That was a mistake, and he’s a very smart guy—he recognized his error, and he corrected it, so I was very encouraged by the nuanced discussion.”
Markets—particularly Treasuries—shifted uncomfortably, with yields rising, following the July Federal Open Market Committee meeting, in part because Warsh had remained firmly against sharing any forward guidance.
A matter of weeks later—Warsh’s 100th day in the role, to be exact—analysts and economists were steadied by the insights Warsh shared at the Federal Reserve Bank of Kansas City’s annual conference. The speech included observations that were hawkish on inflation, mindful of the real economy, and posed questions about the promise of artificial intelligence.
This, too, was a well-timed shift in perspective on Warsh’s behalf, noted Kohn. Skeptics are concerned that Warsh has too much faith in AI and the potential boon it may offer to monetary policy. But Kohn countered: “He was right to say there are a bunch of questions here … I thought it was much more constructive than the way he had been talking about AI before.”
Fed watchers remain concerned about how determinedly Warsh will stick to the beliefs he expressed before and during his early days back at the central bank. Claudia Sahm, creator of the famed Sahm Recession Indicator, previously told Fortune she was so surprised by Warsh’s definitiveness on forward guidance that she nearly “fell out of her chair.”
Kohn suggests Warsh’s first six months on the job have demonstrated to markets that he is willing to adjust: “I’ve been encouraged that he’s learned, but I’m not surprised.”
Kohn said he had initially been disappointed in Warsh’s stern rebuffs for outlook insights, saying: “He had such a firm view on this ‘no forward guidance’ that he was kind of using that to avoid talking about the economy, because he realized if he talked about the economy and inflation, people would pick up where he expected rates to go—even if he didn’t say anything about where he expected rates to go.”
The Fed veteran added: “And then I was encouraged and very, very pleased with the Jackson Hole speech because he recognized he really owed it to the institution, to the markets, to the Congress, to his accountability, to say more, and he did it.”
Beginning hikes
As market tools rapidly digested the contents of Warsh’s speech in a bid to define the path of monetary policy, inquisitive investors may have questioned why Warsh chose to open his speech with talk of a hike—though in the distinctly literal sense, rather than the monetary.
Kohn suggests his hikes’ reputation may have been somewhat embellished. Remembering a trek through Paintbrush Canyon with Warsh and Carney as comfortable enough that the three were talking throughout, he told Fortune: “We had an extended discussion, as I remember, of inflation targets, nominal GDP targets—it was intellectual as well as physical exercise.”
Warsh at the time was on the Fed’s Board of Governors before leaving in 2011, while Carney served as Governor of the Bank of Canada between 2008 and 2013, when he became Governor of the Bank of England.
Kohn said his hikes’ reputation may be somewhat embellished. Remembering a trek through Paintbrush Canyon with Warsh and Carney as comfortable enough that the three were talking throughout, he told Fortune: “We had an extended discussion, as I remember, of inflation targets, nominal GDP targets—it was intellectual as well as physical exercise.”
Away from the conference rooms, Kohn said, the hikes offered a chance to trade ideas with counterparts at other central banks in a more relaxed, less guarded setting. “I remember any number of hikes over the years with lots of different people in which we had terrific conversations—particularly with people from other central banks [about] ‘How did you handle that issue? What do you think of the paper we just heard?’ That kind of thing.
“The hiking … was an important chance to trade ideas, find out what’s going on inside another central bank, what they’re thinking about. It’s a good forum for an open discussion of sometimes difficult issues.”
If Kohn’s hike is an (inadvertent) “death march” and Bernanke’s is a pleasant stroll, what does a path set by Warsh look like? “He came in with some fixed ideas, and he has adapted as he’s surveyed—as he’s walked through the landscape,” said Kohn. “Being inside has given him full insight into what was actually going on in the institution, and what the resources were, and how his fellow policymakers thought, what the staff was doing, what research was going on.”
“I guess he’s adapted as he’s learned—I would hope everybody would do that.”
The post Don Kohn’s infamous ‘death march’ hikes were referenced in Kevin Warsh’s Jackson Hole speech—now the Fed veteran is weighing the chairman’s path ahead appeared first on Fortune.
