Fed Hike Odds Surge to 66 Percent After Jackson Hole
Market expectations for the September Fed meeting have shifted sharply toward a rate increase. The probability of a 25-basis-point hike now stands at 66 percent, signaling the end of the rate pause.
The CME FedWatch Tool now prices a 66 percent probability of a 25-basis-point rate hike at the September 16 meeting. This marks a sharp reversal from earlier expectations of a hold. The Fed funds target range remains at 3.50 percent to 3.75 percent. A hike would push the upper bound to 4.00 percent. This move reflects a rapid shift in market sentiment over the last month.
Chair Kevin Warsh stated at the Jackson Hole Economic Policy Symposium that inflation remains concerning. He reaffirmed the 2 percent PCE target as a firm, fixed goal. Warsh noted that inflation is unlikely to return to target on its own. These remarks occurred on August 28. The market reaction was immediate and decisive. The shift from a likely hold to a likely hike occurred within ten days.
Warsh Rejects Dovish Market Expectations
President Trump nominated Warsh on March 4, 2026. The Senate confirmed him in a 54-to-45 vote on May 13. This was the most divided confirmation in Federal Reserve history. Warsh took the oath of office on May 22. He succeeded Jerome Powell, whose chair term ended May 15. Powell remains on the board of governors until 2028.
Trump publicly criticized Powell for not cutting rates sooner. He expected Warsh to lean toward lower rates. Warsh’s Jackson Hole speech contradicted this expectation. He signaled a willingness to tighten policy if data warranted. The market interpreted this as a pivot toward higher rates. This outcome aligns with the mechanical logic of persistent inflation rather than political preference.
Inflation Data Drives Policy Shift
The framing of inflation as transitory no longer fits current conditions. Warsh explicitly rejected the idea that prices would fade on their own. The persistence of inflation data underlies the recent policy stance. Earlier in August, a weak July jobs report suggested a hold. This view was reversed by Warsh’s keynote remarks. The labor side of the mandate is no longer the dominant concern.
Borrowing Costs Reflect New Reality
Entities financing beyond a few months must adjust their base cases. Aircraft loans and fleet leases are affected by this shift. Working-capital lines also require updated underwriting models. The pause is over, and the chase for inflation control has begun. Lenders should reflect the higher probability of a hike in their pricing. The direction of travel is now clearly upward.
