Warsh opens door to rate hike

Federal Reserve Chair Kevin Warsh used his August 28 Jackson Hole speech to make clear that a September rate increase is back in play. Warsh said the Fed’s 2% inflation goal is a “firm, fixed target” and warned against relying on forward guidance, remarks that pushed traders to reprice the odds of a move at the next policy meeting. CME’s FedWatch tool says futures markets are now assigning roughly a two-thirds chance of a quarter-point increase at the September 16 decision. The change matters because the Fed had held its benchmark rate steady at recent meetings, and investors had been looking for signs that inflation was easing enough to keep policy unchanged. Instead, Warsh’s speech put the emphasis back on price stability and on the possibility that officials may need to tighten again if incoming data do not cooperate. The Federal Reserve’s calendar shows the next Federal Open Market Committee meeting runs September 15-16, with a press conference scheduled for September 16. (federalreserve.gov) ### What exactly did Warsh say in Jackson Hole? Kevin Warsh said on August 28 that the Fed’s price-stability objective is a “firm, fixed target” and told his Jackson Hole audience not to treat his remarks as forward guidance. In the speech, he said markets and the public should understand that “innovations in the conduct of policy” are meant to deliver price stability alongside full employment. (federalreserve.gov) Jackson Hole, Wyoming, was Warsh’s first appearance at the Kansas City Fed symposium as chair, and he used it to frame inflation as an unfinished problem rather than a closed chapter. Reuters, as cited in the source briefing, reported that investors took the remarks as the clearest sign yet that Warsh was open to another increase if inflation failed to move convincingly lower. (federalreserve.gov) ### How far did market expectations move? CME Group says its FedWatch tool tracks implied policy probabilities from 30-day fed funds futures, and market commentary on September 1 said those odds had climbed to about 66% after Warsh’s remarks. A CME video update published September 1 said expectations for a September 16 hike had risen from about 35% to as high as 66% following the Jackson Hole speech. (federalreserve.gov) Those numbers line up with the broad range in the source briefings, which put market-implied odds between roughly two-thirds and nearly three-quarters. The exact figure can move day to day, but the repricing itself is the point: traders who had been leaning toward no change are now treating a hike as a live possibility. ### Why does John Williams matter here? (cmegroup.com) John Williams, president of the New York Fed, has offered a more measured inflation outlook than Warsh. In a May 4 speech posted by the New York Fed, Williams said his base case was for inflation to be about 3% this year before dropping to the 2% target in 2027 as the effects of tariffs and energy prices “move into the rearview mirror.” (cmegroup.com) Williams has also said policy should respond to the “totality of the data,” a phrase he has used repeatedly in speeches and interviews. That leaves investors with a split in tone inside the Fed: Warsh has stressed the risk of inflation staying too high, while Williams has described a path in which temporary price pressures fade over time. (newyorkfed.org) ### Which data could still change the decision? September 15-16 is the date investors are now watching, but the Fed’s decision will come after another round of labor-market and inflation reports. Market participants typically focus on payrolls, unemployment, consumer prices and other inflation gauges in the days before a meeting because those releases can alter futures pricing quickly. (tellerwindow.newyorkfed.org) CME FedWatch probabilities are updated from fed funds futures, so the market’s current pricing is not a promise from policymakers. The next formal milestone is the September 16 rate announcement and Warsh’s press conference, both listed on the Federal Reserve’s calendar. (cmegroup.com) (federalreserve.gov)