Expectations for a September Federal Reserve rate hike have risen following Kevin Warsh’s hawkish remarks at Jackson Hole, but market pricing suggests investors are far from convinced that a move is a certainty.
The CME FedWatch tool showed a 58% probability of a rate increase at the September meeting. That is still below the 60%-70% range where markets typically begin treating a Fed move as highly likely, and well short of the 90% level usually associated with an almost certain policy change.
Jim Bianco, founder of Bianco Research, described the upcoming meeting as a “lean hike” rather than a confirmed outcome.
Warsh strengthened the case for tighter policy in his Friday speech, arguing that inflation trends remain more troubling than conditions in the labor market. He said inflation may not return to the Fed’s 2% target without further policy pressure.
The Fed chair highlighted PCE inflation at 3.7%, calling the reading concerning compared with the central bank’s 2% objective. He also pointed to the broad persistence of price increases, noting that more than half of the goods and services measured by the government had experienced annual price growth of at least 3% over the past year.
Those comments quickly fueled expectations for a 25-basis-point increase in September. The federal funds target range is currently 3.5%-3.75%.
Markets reacted immediately. Bitcoin fell about 3% Friday, slipping below $77,000 after rallying from approximately $63,000 to more than $80,000 earlier this month. Gold also declined, while the dollar and Treasury yields advanced.
Investors Question the Need for Tightening
Several analysts and investment firms are pushing back against the idea that a September hike would represent a major shift toward tighter monetary policy.
ABN AMRO Investment Solutions and Brandywine Global Investment Management are among those taking a more cautious view of the rate-hike outlook.
Robin Brooks, a Brookings Institution senior fellow and former chief economist at the Institute of International Finance, argued that any September increase could be aimed primarily at calming the Treasury market rather than beginning an aggressive tightening cycle.
According to Brooks, such a move could strengthen confidence in the Fed’s commitment to controlling inflation and reduce the additional compensation investors demand for holding longer-term government bonds. That could help prevent Treasury yields from climbing further.
Brooks said a potential September hike could instead be used to stabilize the 10-year Treasury yield and avoid another sharp bond-market sell-off. In that scenario, the hike would serve a different purpose from conventional monetary tightening.
He characterized the move as largely performative, with the broader goal of preventing financial conditions from becoming excessively restrictive.
BTC and Gold Retain Upside Potential
For bitcoin and gold, the relatively modest 58% probability of a September hike leaves the door open for further gains if rate expectations fail to move significantly higher.
Bitcoin has advanced roughly 23% in August, while gold has gained about 10%. Both assets have remained resilient despite rising Treasury yields, a stronger dollar and renewed speculation over the Fed’s next policy decision.
The key question now is whether incoming inflation and labor-market data will push the September hike probability decisively above the level where markets begin treating it as a near certainty.
