Warsh Warns of Inflation Risks, September Rate Hike Odds Surge to 60%
The US stock market has been on a tear since early June, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite reaching fresh all-time highs. However, this surge in prices is not reflective of the underlying inflationary pressures facing the economy.
According to the CME Group's FedWatch Tool, which uses 30-day Fed Funds futures prices to estimate the probability of federal funds target rate changes at upcoming FOMC meetings, the odds of a September rate hike have nearly doubled to 60% following Fed Chair Kevin Warsh's comments at the annual economic symposium in Jackson Hole, Wyoming.
Warsh emphasized that inflation is running above the Fed's two percent target and that price stability should be the predominant focus. He stated that 'short-term interest rates are the predominant tool to achieve the dual mandate' and added 'at sufficient speed' to his standard for underlying inflation moving towards the objective, implying a growing impatience with persistently elevated inflation.
If the FOMC does hike interest rates in September, it may mark the end of Wall Street's historic AI-driven rally. The stock market is priced for perfection, and anything that could slow the AI infrastructure build-out, such as elevated borrowing costs, can halt Wall Street's bull market rally in its tracks.