Warsh's Hawkish Stance Shifts Fed Hike Odds in September

Kevin Warsh's speech at the Jackson Hole Symposium has shifted the Federal Reserve's reaction function toward a September rate hike, according to ING's James Knightley.

The Fed was previously expected to hold rates steady until 2027, but Warsh emphasized a focus on inflation, which has been above target for 65 consecutive months.

The August data points ahead of the decision are crucial: the September jobs report and CPI print. ING had previously said that a non-farm payrolls figure of 75k+ would result in a rate hike, but now believes it will likely require a jobs figure below 25k or net job losses to prevent a hike.

The Fed's credibility is also at stake if they go hawkish again and then turn dovish. Warsh has emphasized trends over individual data points, suggesting he has made up his mind. With no dissenting voices on the FOMC, a 25bp increase now looks more likely than a hold.