Warsh's Hawkish Tone Stokes Rate Hike Fears, Labor Market on Tap

Fed Chair Kevin Warsh's speech at Jackson Hole on Friday was hawkish and sparked concerns about interest rate hikes. He declined to offer forward guidance, stating that he is 'committed to a discipline, not a decision.' The Fed's tone has shifted with better-than-expected inflation prints this summer, but Warsh emphasized that these figures do not yet indicate improved underlying trends.

Market expectations have responded accordingly, with federal funds rate futures implying 2.4 rate increases over the next 12 months, up from 1.8 a week earlier. The odds of a September hike now stand at about 60%, up from 35%. Fedspeak continues this week, with Governors Barr and Waller likely to weigh in on the issues discussed by Warsh.

The economic calendar is packed with labor market data, topped off by August's employment report, which is expected to show a figure above 50,000 for August, a solid outcome that would indicate firming after July's weak print. The Bank of Canada meets Wednesday and is expected to hold rates steady.