Rate Hike Odds Soar Past 60% as Markets Brace for September Decision

The probability of a rate hike by the Federal Reserve on September 16 has surged past 60%, according to the CME Group's FedWatch Tool. This dramatic shift in expectations is largely driven by hotter-than-expected labor market data and hawkish signals from new Fed Chair Kevin Warsh, who has made clear that bringing inflation back to the central bank's 2% target is his top priority.

The August nonfarm payrolls report showed a stronger-than-anticipated job growth of 162,000 jobs in August, while the unemployment rate held steady at 4.1%. This has raised concerns that wage pressures could keep inflation elevated, which is already above the Fed's target since May.

Warsh's speech at the Jackson Hole economic symposium on August 28 was another significant factor contributing to the shift in expectations. He emphasized the importance of bringing inflation back to the 2% target and stated that patience is wearing thin.