September Fed Hike Odds Hold at 58%, Far Below 90%

Markets are growing concerned about a potential Federal Reserve rate hike in September after Fed Chair Kevin Warsh delivered a hawkish speech at Jackson Hole. However, futures markets suggest those fears may be overstated, with the probability of a hike still below 60%.

According to the CME FedWatch tool, traders were assigning a 58% chance of a September rate increase. That remains well below the 90% level generally viewed as signaling that a policy move is almost certain. Historically, the Fed tends to align with market expectations when the probability reaches roughly 60% to 70%.

“The next Fed meeting is a lean hike not a done deal,” Bianco Research founder Jim Bianco wrote on X.

Warsh took a firm stance on inflation Friday, saying recent inflation readings were more troubling than developments in the labor market. He argued that inflation was unlikely to return to the Fed’s target without additional pressure.

He pointed to PCE inflation at 3.7%, significantly above the central bank’s 2% goal. Warsh also noted that more than half of the goods and services tracked by the government had recorded price increases of at least 3% over the past year. Before the pandemic, that share had averaged closer to one-third over the preceding two decades.

The comments were quickly interpreted as signaling support for a 25-basis-point rate hike at the September meeting. The federal funds target range currently stands at 3.5% to 3.75%.

Bitcoin reacted negatively at first, dropping about 3% to below $77,000 Friday. The decline marked its first significant pullback after BTC had climbed from roughly $63,000 to above $80,000 earlier in August. Gold also weakened, while the U.S. dollar and Treasury yields moved higher.

Analysts Push Back on Hike Fears

Jim Bianco is not the only market observer questioning the likelihood or significance of a September hike. Investment firms such as ABN AMRO Investment Solutions and Brandywine Global Investment Management have also expressed skepticism over expectations for aggressive monetary tightening.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, suggested that a possible rate increase could be aimed more at stabilizing the Treasury market than initiating a traditional tightening cycle.

Brooks argued that a hike could reinforce the Fed’s credibility on inflation, potentially reducing the additional risk premium investors demand for holding longer-dated government debt. That could help limit further increases in Treasury yields.

He said a September increase, if implemented, could be intended to anchor the 10-year Treasury yield and prevent another bond-market sell-off similar to the move that followed July 29.

Under that interpretation, the policy move would have a different objective from a conventional rate hike. Rather than significantly tightening financial conditions, it could be designed to preserve market stability and maintain relatively loose conditions.

Bitcoin and Gold Still Have Room to Rise

With September rate-hike odds at only 58%, markets have yet to treat a Fed move as a certainty. That leaves room for bitcoin and gold to extend their August advances if expectations for monetary tightening fail to strengthen substantially.

Bitcoin has gained about 23% this month, while gold is up roughly 10%, showing that both assets have maintained strong momentum despite renewed concerns over interest rates and broader market volatility.

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