Fed Rate Hike Odds Climb Ahead of FOMC Meeting in September

The Federal Reserve's next interest-rate decision is set for September 15-16, and markets are increasingly focused on the possibility of a rate hike. Following Fed chair Kevin Warsh's speech at Jackson Hole, the chance of a September rate hike rose from around 33% to 66%, according to market pricing, which later climbed to 64%. Economist Steve Hanke put his own estimate at approximately 80%

Markets are watching U.S. jobs data and Fed policy expectations, as well as geopolitical tensions and oil prices, which are keeping risk appetite fragile. The strength of the U.S. labor market is a key factor in Warsh's case for keeping rates high or raising them, with near-record-low jobless claims cited as evidence that the Fed still has room to maneuver.

Upcoming labor reports will put this view to the test, particularly Friday's nonfarm payrolls and unemployment figures. Strong numbers could support a September rate hike, while weak numbers might make that case harder to defend. In addition to jobs data, the Federal Reserve will also receive PPI and CPI information shortly before its meeting.

Economist Steve Hanke expects a higher chance of a September rate increase than the broader market, estimating an 80% probability. He believes Warsh could join the three members of the Federal Open Market Committee who voted for a rate increase at the previous meeting, potentially influencing other members.