Warsh's Hawkish Jackson Hole Speech Pumps Rate Hike Odds Past 60%

Federal Reserve Chair Kevin Warsh's hawkish speech at Jackson Hole has increased the likelihood of a September interest-rate hike to above 60%. The market-implied odds, as measured by CME FedWatch, rose to 60.4% on August 31, up from around 56% on August 28.

Warsh's remarks supported the dollar and weighed on gold prices and Asian stock markets. Deutsche Bank and UOB maintained their forecasts for additional tightening this year and a total rate increase of 0.5 percentage point.

Some analysts questioned whether another rate increase is warranted, citing softer labor-market data since the last FOMC meeting and inflation readings that have come in better than expected. Others pointed to the possibility of diverging policy directions between the Fed and the U.S. Treasury.