Warsh's Hawkish Rhetoric Sends Interest Rate Hike Odds Soaring
Fed's Warsh Speaks at Jackson Hole, Boosts Interest Rate Hike Odds
Traders immediately repriced their expectations for the September FOMC meeting after Fed Governor Kevin Warsh's speech in Jackson Hole, with odds of an interest rate hike jumping to 60% from as low as 30% before the speech.
The comments from Warsh took the wind out of the US dollar debasement trade that had been boosting scarce assets like gold and Bitcoin throughout August. The Fed's credibility has been a concern, with some market participants worried about its communication on future policy decisions.
Looking at gold, a confirmed break below $4410 would expose support levels at $4320 and $4230, while a bounce from here could start to unwind last week's drop. The upcoming US economic data, including Friday's NFP report and next Friday's CPI reading, will be crucial in determining whether the Fed can convince traders that it will deliver an interest rate hike if needed.