Markets Price 60% Odds of a Fed Rate Hike on Sept. 16 as Trump Presses Warsh to Hold
With the Federal Reserve's September 15-16 meeting ten days away, CNBC reported that markets have priced in roughly a 60% probability of a quarter-point rate increase.
President Donald Trump and senior administration officials are also mounting an unusually broad public campaign to stop it.
Fed Chair Kevin Warsh, the 17th head of the central bank, was sworn in on May 22 after Trump selected him to succeed Jerome Powell.
Since taking office, Warsh has dropped forward-looking guidance from Federal Open Market Committee (FOMC) meeting statements and declared that price stability is the central bank's predominant focus, according to The Motley Fool.
Trailing 12-month inflation stood at 4.2% as of May, a three-year high, driven by tariffs and the Iran conflict. The number is hard to ignore.
What Warsh Said at Jackson Hole
At the annual Kansas City Federal Reserve symposium in Jackson Hole, Wyoming, Warsh gave his debut speech as chair. He emphasized that price stability is not automatic and that it is the Fed's responsibility to deliver it, as Morningstar reported.
He acknowledged that recent PCE and CPI readings came in better than expected but said they did not yet confirm that underlying inflation trends had meaningfully improved.
Preston Caldwell, Morningstar's senior U.S. economist, said Warsh speaks like someone who intends to raise rates and described it as very likely Warsh will hike by the October meeting at the latest.
Goldman Sachs chief economist Jan Hatzius said a September hike is possible if August CPI and PPI data come in firmer than expected.
His base case, however, remains that the FOMC will hold, with core CPI and PCE inflation expected to print near 0.2% for August. rate hike odds
The White House Pushes Back
The pressure from the administration is broad. Vice President JD Vance stated publicly that the Fed should be lowering rates, not raising them.
Treasury Secretary Scott Bessent, in a CNBC interview, argued the Fed typically does not raise rates during a supply shock unless second- or third-order inflationary effects emerge.
Senior economic counselor Peter Navarro went further. He called a potential rate hike careless and warned it would hurt the sectors America most needs to grow.
Trump himself escalated the pressure Friday by threatening to restrict trade with countries running surpluses with the U.S. unless the Fed cuts rates, a step he had not taken before. Fed's September decision
What History Says About Rate-Hike Cycles and Stocks
The data is not encouraging for bulls. Carson Investment Research shows the S&P 500 has fallen in the month following every one of the five quarter-point opening rate hikes since 1990, a 100% loss rate over that one-month window.
At the three-month mark, the index was lower 80% of the time, with an average decline of 2.7%.
The one instance since 1990 in which the Fed opened a hiking cycle with a 50-basis-point move, half a percentage point, was followed by double-digit percentage losses at the three-, six-, and twelve-month marks, according to The Motley Fool's reporting on the Carson data.
The S&P 500 has historically recovered from rate-hike cycles over longer timeframes. But with the CME Group's FedWatch Tool showing near-even odds heading into the meeting, investors are watching August inflation data closely before the FOMC convenes next week.
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