Warsh's Hawkish Tone Sparks Rate Hike Bets

The Fed is getting more aggressive in its monetary policy stance, thanks to Federal Reserve Chairman Kevin Warsh's hawkish comments at Jackson Hole. Warsh reaffirmed that the 2% PCE inflation target is the Fed's 'firm, fixed target' and stated that inflation remains too high.

Warsh also pushed back against the idea that monetary policy is already restrictive, saying he would be hard-pressed to describe broad financial conditions as restrictive. This implies that the Fed has room to raise rates without crushing economic activity.

The odds of a September rate hike jumped to 66% after Warsh's speech, and a second hike in January 2027 is now fully priced in. A third hike in 2027 carries a 35% chance.