Warsh's Inflation Warning Sets Stage for Fed Rate Hikes

Federal Reserve Chair Kevin Warsh's speech at Jackson Hole has set up the central bank's September policy meeting as a pivotal moment in its mission to tame prices.

Warsh warned that price pressures have yet to meaningfully slow, leaving little option but to raise interest rates this year if inflation remains above the 2% target. While he didn't signal a done deal, his remarks were interpreted by economists and investors as a threat to hike rates in September.

The implied probability of a rate hike in September rose to above 50% from around 35% before the speech, based on federal funds futures. Analysts at Barclays and Societe Generale said Warsh's remarks increased the likelihood of a quarter-point rate hike at the upcoming September gathering, followed by a second increase in December.