Markets Assign Over 90 Percent Probability to September Fed Rate Hike After Warsh Jackson Hole Speech and August Data Revisions

Two weeks prior, July payrolls had printed negative and core inflation showed moderation, leaving markets pricing low odds of a September move. Warsh's Jackson Hole remarks emphasized inflation risks despite supply-side drivers from the Iran conflict. The subsequent BLS employment report revised July figures positive and added robust August gains, while the August CPI release showed core month-on-month acceleration above consensus.

Rabobank analysis and Goldman Sachs FOMC previews both noted that supply shocks warrant looking through transitory inflation when expectations remain anchored. Warsh's speech nevertheless committed the Fed to treating current readings as persistent, removing the option of holding without market disruption. This sequence eliminated the data cover that would have allowed policy to stay on hold through year-end.

The two-sided ledger shows Warsh gained short-term credibility on inflation fighting but now faces higher costs if subsequent data weaken. Markets have already translated the hawkish signal into a steeper path, pricing three to four additional hikes by end-2026. Forward guidance that explicitly conditioned action on demand-side measures could have mitigated this translation.

With the FOMC in blackout and pricing locked in, a hold on Wednesday would represent a material policy surprise. The September decision will test whether the Fed can still separate supply-driven inflation from its mandate without further eroding the credibility Warsh sought to restore.