What would push the Fed to raise rates in September?
Warsh said the Fed still has work to do if underlying inflation is not returning to its 2% target and indicated that financial conditions may not be restrictive enough to contain prices.[4] July’s preferred inflation measure was up 3.7% from a year earlier, while futures markets raised the implied probability of a September increase from 35% before the speech to 57% afterward.[4]
Why it matters
The decision could turn on data released shortly before the meeting, making the August employment report and the next consumer-price reading unusually consequential for borrowing costs, bond yields and the dollar.[1][4]
Key insights
- The two-year Treasury yield, which is sensitive to expected Fed policy, climbed to a one-month high of 4.34% after the speech.[4]
- Warsh’s message addressed doubts created when he previously suggested that rising market yields could reduce the need for the Fed itself to increase rates.[4]
- A September increase is not settled: Warsh has also begun reviews of the Fed’s balance-sheet practices, data use and inflation framework.[4]