- September Fed rate hike odds jumped from 34% to as high as 61% after Warsh’s Jackson Hole speech.
- Warsh said financial conditions remain unrestrictive as inflation holds at 3.7%.
- Gold, stocks and crypto fell as traders unwound positions built around a Fed hold.
Federal Reserve Chair Kevin Warsh’s Jackson Hole speech quickly reshaped September rate expectations, forcing traders to reprice the risk of a potential hike after entering the event largely positioned for steady borrowing costs. Roughly $2.3 trillion was wiped across gold, silver, U.S. equities and crypto markets.
Before Warsh spoke, the probability of a September hike stood near 34%, while roughly 70% of market pricing favored unchanged rates. A Bank of America survey also showed 69% of fund managers expected Warsh to deliver a neutral message. Those expectations changed after his remarks.
September Fed Rate Hike Odds Jump After Warsh Speech
Warsh described the Federal Reserve’s 2% inflation target as “firm and fixed” and said recent improvements in inflation had not led to a meaningful change in the underlying trend.
Annual inflation, measured by the Fed’s preferred Personal Consumption Expenditures Price Index, stood at 3.7% in July. Warsh also noted that about half of the items within the PCE basket were rising at annual rates above 3%.
He said policymakers must gain enough assurance that underlying inflation is moving toward 2% at an appropriate pace. Otherwise, he said, the Fed would still have “work to do.” Rate markets responded quickly. Estimates cited after the speech showed September hike probabilities rising from roughly 34%-40% to between 55% and 61%.
Financial Conditions Add to the Positioning Shift
Warsh also said financial conditions were not restrictive, another statement that challenged expectations for an imminent pause or easier policy. He pointed to business investment rising 9%, corporate profits increasing more than 20% and unemployment holding at 4.1%.
Those figures formed part of his assessment of an economy that continues to show strength while inflation remains above target. Warsh did not commit to a September move, describing the approach as “a discipline, not a decision.” However, he also declined to rule out a rate increase.
Gold, Stocks, and Crypto React to Fed Repricing
The adjustment spread quickly across markets. Gold dropped more than 3%, while silver fell over 4% toward $67 an ounce. U.S. equities also declined, while crypto markets joined the broader selloff.
For traders, the next test now shifts to incoming inflation, employment, and financial-condition data. Those releases will help determine whether September Fed rate hike expectations remain strong or move back toward a hold. The immediate trading issue therefore centers on positioning.
Related: Fed Chair’s Strong Economy Message: What It Means for Treasury Yields and Bitcoin
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