Traders now price a 67% chance of a September rate increase after the Fed chair emphasized inflation control over easing demands.
Federal Reserve Chair Kevin Warsh indicated a more aggressive monetary policy stance Wednesday, prioritizing inflation reduction over calls for rate cuts. His remarks suggested potential rate hikes as soon as July, with markets reacting sharply to the hawkish shift.
The 2-year Treasury yield surged during Warsh’s news conference, reflecting heightened expectations for tighter policy. Futures markets now assign a 67% probability of a September rate hike, up from earlier bets, while odds for a July move rose to 33%. Longer-term projections also shifted, with a May 2031 implied fed funds rate at 4.78%.
Warsh’s comments contrasted with President Trump’s repeated demands for lower rates, underscoring the Fed’s focus on its 2% inflation target. Inflation has exceeded that threshold for five consecutive years, prompting unanimous FOMC support for price stability measures.