What we learned from Warsh's Jackson Hole speech, and GE Vernova's CFO to retire

Breaking news from the markets: Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. The stock market is failing to hold onto its morning gains, as Wall Street digests Federal Reserve Chairman Kevin Warsh's speech at the annual Jackson Hole symposium. The S & P 500 is down about 0.

25%, while the tech-heavy Nasdaq is off about 0. The Dow industrials are basically flat. Still, it's been a winning week for markets.

Economic Details

Treasury yields are higher across the curve, with the market interpreting Warsh's speech — particularly his comment that the Fed has more "work to do" to tame inflation — as hawkish. Traders now see a nearly 60% probability of a rate hike at the Fed's Sept. 15-16 policy meeting, according to the CME Group's FedWatch tool .

One day ago, that probability stood at just 35%. Warsh used his first Jackson Hole address to elaborate on his belief that central bankers shouldn't telegraph future policy moves to the market, a practice known in Fedspeak as "forward guidance. " Warsh acknowledged that forward guidance was essential during the Great Recession, when the practice came about (Warsh was a Fed governor during that time).

However, he said he believes it has now outrun its usefulness and, in some ways, does more harm than good. He argued it adds to the "noise" and drowns out important market "signals" that the Fed needs appropriately modify monetary policy. Warsh said he wants the market focused less on what central bankers are saying, and more on the underlying state of the economy, availability of credit, commodity prices, and so on.

Analyst Views

If the markets rely materially on Fed guidance, and the Fed relies on market dynamics in its own thinking on monetary policy adjustments, we end up with what he described as "a hall-of-mirrors problem. " That, he added, can result in both parties — the Fed and market participants — being more likely to be blinded to new developments, resulting in an increased likelihood of policy errors. As an example, Warsh said he believes forward guidance offered by the Fed in 2021 contributed to the central bank's delayed reaction to the 40-year high inflation we witnessed coming out of the Covid-19 pandemic.

The consequences of policy errors, Warsh said, is felt more acutely on Main Street than on Wall Street. Whereas Wall Street can adjust exposure to any Fed missteps — or even look to take advantage of them — Warsh said it is Main Street that gets stuck with the burden of high inflation and/or a less secure job market. The artificial intelligence boom was another big theme in Warsh's speech.

It also is a complicating factor in the outlook for interest rates. We are at a "hinge point in history" thanks to AI, Warsh said, with the potential for higher economic growth on the rise. "AI is a new variable.

Financial markets are tracking the development closely as investors assess the likely impact.