Warsh's Hawkish Tone Sends Rate Hike Odds Soaring to 60% Ahead of September Meeting

Federal Reserve Chair Kevin Warsh's Jackson Hole speech has sparked a significant increase in the probability of a September rate hike, according to Reuters. The data suggests that the probability rose from 35% before the speech to about 60%, based on CME data.

Warsh emphasized that persistent inflation could require higher interest rates, stating 'otherwise, we have work to do.' He stopped short of promising a September rate hike but made clear that policymakers need to be confident in the underlying inflation's return to the 2% target 'clearly and at sufficient speed.'

The Fed's price-stability objective remains firm at 2%, measured by the personal consumption expenditures price index, which increased 3.7% in July from a year earlier.

Warsh also argued that excessive forward guidance can limit the Fed's freedom to respond to new economic information, suggesting that financial markets should pay closer attention to actual economic and market signals rather than trying to anticipate the Fed's next move solely from central-bank communications.