What would push the Fed to raise rates in September?
Kevin Warsh used his August 28 Jackson Hole speech to open the door to a Federal Reserve rate increase as soon as 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…
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]
Cheatsheet facts: What changed: Warsh moved closer to acknowledging that rate increases may be required, and markets lifted the implied September-hike probability to 57%.[4] | Why now: The Fed’s preferred inflation measure rose 3.7% in the year through July, remaining well above its 2% target.[4] | Watch next: Watch the August payrolls report, the subsequent consumer-price index and the price report due just before the mid-September Fed meeting.[1][4]
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]
Cheatsheet facts: What changed: Warsh moved closer to acknowledging that rate increases may be required, and markets lifted the implied September-hike probability to 57%.[4] | Why now: The Fed’s preferred inflation measure rose 3.7% in the year through July, remaining well above its 2% target.[4] | Watch next: Watch the August payrolls report, the subsequent consumer-price index and the price report due just before the mid-September Fed meeting.[1][4]