Just three weeks ago, markets treated the Fed’s September 16 rate decision as a coin flip — hike odds hovered around 55-60%. Today, that figure has surged to 85-87% according to CME FedWatch.
The turning point was Chair Kevin Warsh’s late-August Jackson Hole speech, where he argued that summer inflation readings hadn’t sufficiently proven underlying trends had improved. Core PCE remains at 3.7-4.1%, well above the 2% target. This week’s hot CPI/PPI data further reinforced that case. Most notably, Goldman Sachs — the last major bank still calling for a hold — has officially flipped to forecasting a 25bp hike.
The 10-year Treasury yield has climbed near 5%, signaling markets have largely locked in a hike to 4.00%. With odds this high, the actual price reaction on September 16 will likely hinge more on the dot plot and forward guidance than the rate decision itself.