Markets see Warsh endorsing a rate hike in September. Not everyone is convinced

• Rate hike odds for September jumped to 66.1% after Warsh's speech, nearly double pre-speech levels, though some economists like Citi's Andrew Hollenhorst see his comments as only 'marginally' more hawkish than usual
• Treasury Secretary Bessent argues against hiking into a 'supply shock' when core inflation remains 'very, very restrained,' while recent data shows headline PCE at 3.7% and core at 3.3%
• Critical data releases before the Fed meeting include jobs reports amid three consecutive weak payroll months, plus CPI/PPI readings and retail sales figures on the day of the rate decision

Markets Reassess September Rate Hike After Fed Chair Warsh's Jackson Hole Speech

Federal Reserve Chairman Kevin Warsh's remarks at the Jackson Hole symposium on Friday triggered a sharp market repricing, with odds of a September rate hike jumping to 66.1%—nearly double pre-speech levels. Markets had previously expected no rate increase until at least December.

Key Divergence in Views:

Warsh emphasized that recent soft inflation data "does not tell me that underlying trends have meaningfully improved," stating the Fed must ensure "underlying inflation is moving to our objective, clearly and at sufficient speed." However, several influential voices remain skeptical:

• Treasury Secretary Scott Bessent argued against hiking into a supply shock, noting core inflation "has remained very, very restrained"
• Citigroup economist Andrew Hollenhorst called Warsh's comments "only marginally" more hawkish than usual, predicting rate hikes are "unlikely this year" given cooler inflation and softer hiring data
• JPMorgan's David Kelly suggested markets were "premature" in assigning 60% probability to a September hike, citing weaker economic momentum

Critical Data Ahead:

Before the September 15-16 FOMC meeting, the Fed will receive key reports on employment (three consecutive weak payroll prints raise concerns), consumer/producer price indexes, housing, and retail sales released the day of the decision.

Current Inflation Metrics:

• Headline inflation: 3.7%
• Core inflation: 3.3%
• Dallas Fed measure: 2.3% (closer to Fed's 2% target)

Wall Street Split: Bank of America maintains its call for three rate increases, arguing Warsh must deliver or "risk undermining credibility," while others see insufficient justification given current data trends.