Warsh's Hawkish Tone Sends Rate Hike Bets Soaring to 57%

US Federal Reserve Chairman Kevin Warsh's speech at the Jackson Hole Symposium has sent rate hike bets soaring to 57% from 30%, according to CME FedWatch data. This represents a sharp increase in expectations, with traders now pricing in a 70% probability of a rate hike for the October 28 meeting and nearly a 90% chance of a hike by December.

In his keynote speech, Warsh emphasized that policymakers must be confident that underlying inflation is moving back to their 2% target before taking further action. He acknowledged that interest rates may need to rise to ease price pressures, but stopped short of outlining specific plans for achieving this goal.

Goldman Sachs remains skeptical about a rate hike in September, despite the more hawkish tone on monetary policy. The brokerage expects core CPI and PCE inflation to rise around 0.2% month-on-month in August, which would support its view that the FOMC will remain on hold.