Fed Chair Kevin Warsh expressed concern about persistent inflation Friday during his Jackson Hole speech, and Kalshi's September interest rate market jumped following his remarks.
The market for the Federal Reserve's September decision shows a 47% chance of a 25-basis-point increase and a 54% chance the Fed will hold rates steady. The hike probability was sitting at 30% before Warsh's remarks.
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The next Fed rate hike market also saw a noticeable increase. The price for the next Fed rate hike happening before 2027 jumped to 66%, before July 2027 to 78%, and before 2028 to 83%.
What did Warsh say?
Warsh used his speech at the Fed's annual symposium in Jackson Hole, Wyoming, to emphasize that inflation remains above the central bank's target.
CNBC's Jeff Cox reported that Warsh didn't make any explicit commitments about where interest rates might go at the Fed's September meeting, but he did acknowledge, “while this summer’s [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved.”
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh said. “Otherwise, we have work to do. That’s our job, our mandate and our charge to keep.”
Kalshi wasn't the only market to move following Warsh's remarks. CME Group's FedWatch tool put the probability of a September rate hike at 55.7%, about 20 percentage points higher than a day earlier, CNBC reported.
Other Fed officials have also expressed concern about persistent inflation and argued for higher interest rates.
CNBC recently interviewed Cleveland Federal Reserve President Beth Hammack, who said recent inflation data show the Federal Reserve needs to act sooner rather than later.
“I don’t want to prejudge anything, but I believe now is the time to act,” Hammack said. “I believe that we’ve been in an inflationary situation for more than five years. It’s been running well above our target. I don’t see any restriction in policy when I look at financial conditions and when I talk to market participants.”
Hammack warned that leaving inflation above the Fed's target for too long could increase the economic pain for consumers and businesses.
“The longer inflation stays above our objective, the harder it will be for us to bring it back down, and the more pain that individuals and businesses are going to be experiencing,” Hammack said.
Hammack isn't alone in calling for higher rates. Yahoo Finance senior reporter Jennifer Schonberger reported that "several members of the Federal Reserve favored raising interest rates at the central bank's policy meeting last month."
Hammack, Dallas Fed President Lorie Logan, and Minneapolis Fed President Neel Kashkari “dissented, preferring to raise rates by a quarter percentage point. Since the meeting, other officials have spoken, including Kansas City Fed President Jeff Schmid, who also suggested that rates should be higher to rein in inflation.”
With several Fed officials expressing concern about persistent inflation, traders are weighing the possibility that September could bring the Fed's first rate increase of the year.
The takeaway:
Kalshi markets now predict:
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