Trump vs. Warsh: Investors Price Near-Certain Fed Hike Amid Inflation Fears

Investors now treat a US interest rate rise as near certain at the Federal Reserve's September 15 to 16 meeting, with swap traders pricing about a 90% chance of a quarter-point hike after hotter-than-expected inflation and a jump in oil prices.

The probability has moved fast, from below 40% before Fed Chair Kevin Warsh's Jackson Hole speech in late August to roughly 60% on August 31 and now nearly 90% in swap markets, according to Bloomberg.

Warsh's case for a hike rests on breadth, citing that 54% of the 199 components of the personal consumption expenditures price index had risen more than 3% over the previous 12 months. The administration argues that inflation is contained due to the gap between core PCE and CPI rates.

The decision may come down to decimal places, with Axios reporting that a monthly core PCE reading of 0.2% or lower signals easing, while 0.3% or higher implies re-acceleration.