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September Fed decision is now a coin flip as rate hike odds increase post Warsh
After Kevin Warsh’s Jackson Hole speech, CNBC says September’s Fed decision is effectively split: fed-funds futures and prediction markets moved toward a 25bp hike, with Warsh stressing the Fed must be confident underlying inflation is moving back to target at sufficient speed.
CNBC reports that the probability of a September rate hike has risen sharply after Fed Chair Kevin Warsh’s Jackson Hole keynote speech. The article frames the decision as closer to a “coin flip” for markets: it cites fed-funds pricing around a 56% chance of a 25bp hike on the CME’s FedWatch tool, with prediction-market platforms also showing roughly even odds.
The core of the market shift, according to CNBC, is Warsh’s commitment to fighting inflation while cautioning that better headline readings over the summer do not yet prove that underlying trends are improving at the required speed. The report includes a direct emphasis from Warsh that the Fed must be confident underlying inflation is moving to the objective “clearly and at sufficient speed,” otherwise “we have work to do.”
CNBC also provides context for why the probability had been lower before the speech: it says odds for a hike declined over the prior month after a weaker-than-expected employment report showing the US lost jobs in July, alongside signs that inflation cooled though remained above target. Warsh’s remarks addressed those data, and CNBC says short-term yields rose in response, with the 2-year Treasury yield reaching its highest level since late July.
For FX, the main takeaway is not that a hike is guaranteed, but that the distribution of outcomes has tightened toward “higher rates sooner” following a central-bank narrative about underlying inflation. The next key element is whether forthcoming inflation data confirms the “underlying trends” test that Warsh highlighted.
Why this matters for FX
This is directly about the expected path of US short-term rates following central-bank communication. Changes in hike probabilities feed quickly into US yields and the USD through interest-rate differentials and expectations for monetary tightening.