Warsh's Hawkish Tone Sparks September Rate Hike Bets

Fed Chair Kevin Warsh's keynote speech at the Jackson Hole Economic Policy Symposium sparked market expectations of a September rate hike, pushing implied odds to 58% from 36% the day before. In his address, Warsh emphasized that despite better-than-expected summer inflation prints, underlying trends have not meaningfully improved. He added that 'otherwise, we have work to do,' indicating that a rate hike may be necessary.

Markets responded quickly, with the policy-sensitive 2-year Treasury yield rising 11 basis points and the 10-year holding near 4.72%. The S&P 500 Index rose approximately 0.5% on the week, driven by strong results from Nvidia, Salesforce, and CrowdStrike.

The labor market will be in focus next week, with key readings including ISM manufacturing, ADP, and Friday's August employment report. A single soft jobs print may cool hike expectations, but heavy September issuance and a firm labor market could keep upward pressure on the front end.