The market’s expectations were upended... Fed rate hike odds for September now at 50-50

[Financial News]  

Concerns are rising rapidly that the Federal Reserve System (Fed) may raise interest rates next month.
Fed Chair Kevin Warsh shifted market sentiment with his speech in Jackson Hole, Wyoming, on the 28th local time.
In his keynote address, Warsh said that given inflation, the Fed’s current policy stance could not be considered sufficiently restrictive, signaling the possibility of further tightening.
According to CNBC, options traders on the CME Group’s FedWatch Tool see a 56% chance of a 0.25 percentage point rate hike in September.
On prediction market Kalshi, traders judged after Warsh’s speech that the Fed has a 48% chance of raising rates at next month’s Federal Open Market Committee (FOMC) meeting. Before the speech, the odds of holding rates steady had been close to 70%.
The Fed will hold its FOMC meeting on September 15-16.
Another prediction market, Polymarket, also showed a 49% chance of a rate hike.
Market expectations have swung back and forth since the FOMC meeting on July 28-29.
Right after that meeting, the market was almost certain the Fed would raise rates in September. That confidence was fueled in part by the fact that three FOMC members dissented, saying rates should be raised to combat inflation.
But the situation changed sharply afterward, and expectations shifted toward a hold.
That was because U.S. employment fell in July, while inflation was relatively subdued, contrary to earlier concerns. Although inflation remained above the Fed’s 2% target, easing price pressures led markets to expect the central bank would wait and watch for now.
Warsh’s Jackson Hole speech on the 28th quickly reversed that mood.
After referring to those indicators in his speech, he stressed that they were not enough. He said that while this summer’s inflation readings were better than expected, they did not show a meaningful improvement in the underlying trend.
Warsh said, "We need to be confident that core inflation is moving clearly and at a sufficiently fast pace toward our target." He added, "If not, then there is work to do. That is our job, our duty, and what we must uphold."
After Warsh’s remarks, the yield on the two-year U.S. Treasury bonds, which reflects market expectations for Fed policy, jumped 0.118 percentage points to 4.35%. That was the highest level since late last month.
[email protected] Song Kyung-jae Reporter