Federal Reserve Shifts Bias Toward September Rate Hike

ING's James Knightley believes that Federal Reserve Chairman Kevin Warsh's recent speech at Jackson Hole has shifted the Fed's reaction function toward a September rate hike. This shift in bias is despite ING's macro projections suggesting the Fed could wait.

The analysis highlights inflation above target, robust activity but pressured households, and concludes that a 25bp move is now more likely than a hold, with rates then stable into 2027.

Ahead of the Jackson Hole Symposium, Warsh took a notably more hawkish stance, emphasizing a focus on inflation, which has been above target for 65 consecutive months, and a sense that financial conditions aren't tight in an environment of full employment.

Warsh's emphasis on trends rather than individual data points suggests he has made his mind up, and with no-one on the FOMC openly hostile to a rate hike, a 25bp increase now looks more likely than a hold.