Fed Chair Warsh's Jackson Hole remarks boost September rate-hike odds, but analysts remain divided

Federal Reserve Chair Kevin Warsh’s remarks at the Jackson Hole symposium on Friday prompted a sharp shift in market expectations for a rate hike at the September 15-16 FOMC meeting. The CME Group’s FedWatch tool showed the probability of a hike rising to 66.1%, up from roughly one-third before the speech.

Warsh acknowledged that recent inflation data have been soft but said the trend is not yet sufficient, stating that the Fed must be confident that underlying inflation is moving toward its 2% target at a “sufficient speed.”

Treasury Secretary Scott Bessent, speaking from the G20 summit, cautioned that the economy is experiencing a supply shock and that “core inflation has remained very, very restrained,” suggesting that a hike may be premature.

Citigroup economist Andrew Hollenhorst described Warsh’s comments as “relatively uncontroversial” and only marginally more hawkish than previous statements, noting that recent data show cooler inflation and softer hiring. He projected that the July FOMC did not reach consensus on a hike and that consensus is unlikely for September.

JPMorgan Asset Management chief global strategist David Kelly highlighted weak labor-market data, saying the economy “doesn't have quite as much momentum as Kevin Warsh suggested” and that assigning a 60% probability to a September hike may be premature.

Bank of America economist Aditya Bhave argued that Warsh’s focus on inflation trends rather than isolated data points raises the bar for a “stand-pat” stance, and that the Fed will need a material downside surprise to avoid a hike.

Key economic releases this week—including employment, consumer and producer price indexes, housing data, and retail sales—will provide additional guidance for policymakers ahead of the meeting.