Probability of a Federal Reserve rate increase at the September policy meeting surged past even odds following Federal Reserve Chairman Kevin Warsh's keynote address at the Jackson Hole symposium, flipping expectations that had favored no change.
Before Warsh spoke, nearly 70% of traders priced in a hold. By Wednesday, the CME Group's FedWatch tool showed approximately a 56% chance of a quarter-point hike at the September 16 meeting. Kalshi traders placed the odds at 48%, while Polymarket offered 49%. Cryptocurrency trader @WOLF_Financial estimated a 53% probability of a rate increase by the time of the FOMC press conference on September 17.
The shift came as underlying inflation data remained stubbornly elevated. Fed Governor Lisa D. Cook noted on August 5 that the PCE Price Index rose 3.7% over the prior 12 months through June, with core PCE up 3.3% — well above the Fed's 2% target. Cook also characterized the June unemployment rate of 4.2% as reflecting a "low-hire, low-fire environment."
Markets reacted quickly. The 2-year Treasury yield climbed to its highest level since late July, shortly after Warsh's remarks signaled a more hawkish posture from the central bank.
Dissent within the FOMC has already surfaced. Three committee members voted against maintaining current rates at the July meeting, suggesting internal disagreement even before the Jackson Hole keynote reframed external expectations.
The probability flip underscores how a single high-profile speech can recalibrate market pricing when inflation pressures remain above target and labor-market conditions suggest limited headroom for further accommodation.
