Warsh's Hawkish Fed Message Sends September Rate-Hike Odds Higher

Investors sharply increased their expectations for a Federal Reserve interest-rate hike in September after Fed Chair Kevin Warsh delivered a more hawkish message at the central bank's annual economic summit in Jackson Hole, Wyoming, Mary Helen Gillespie reported for TheStreet.

Federal Reserve Chair Kevin Warsh's Jackson Hole speech prompted markets to sharply increase expectations for a September interest-rate hike. [Photo: Board of Governors of the U.S. Federal Reserve System Facebook]

Warsh's recent speech, delivered roughly 100 days into his tenure as Fed chair, emphasized the need for further action if the Federal Reserve does not gain confidence that underlying inflation is moving clearly toward its 2% target.

“We have work to do,” Warsh said, signaling that the Fed could raise interest rates if inflation fails to make sufficient progress toward the central bank's target.

Market expectations for a September rate increase jumped sharply after the speech.

Reuters reported that the probability of a September hike rose to about 55.7%, from 35.4% the previous day. Other market reports put the probability at roughly 60% later in the session.

Morgan Stanley Chief US Economist Michael Gapen said the decision remained a close call and maintained that inflation was decelerating.

John Luke Tyner, portfolio manager and head of fixed income at Aptus Capital Advisors, said Warsh's remarks gave investors a clearer view of how the Fed was assessing inflation and monetary policy.

Warsh's comments also contributed to a rise in Treasury yields and a decline in US stocks on Aug. 28 as investors reassessed the likelihood of higher interest rates.