Investors are increasingly betting that the U.S. Federal Reserve will move up its expected interest rate hike to September from October, after Fed Chair Kevin Warsh expressed commitment to fighting inflation. The latest CME Group FedWatch Tool shows investors assign a 59.5% probability of a 0.25% rate hike at the September meeting, up from 35.4% yesterday, while the probability of holding rates at 3.50-3.75% fell to 40.5% from 64.6%. In a speech at Jackson Hole, Warsh expressed concern that inflation remains high, despite better PCE and CPI figures, and said he does not believe the underlying trend will improve significantly. Meanwhile, Cleveland Fed President Beth Hammack reiterated that the Fed is far from its inflation target and should tighten monetary policy further. She was one of the dissenting voters against holding rates in July.
Higher probability of Fed rate hike in September implies higher policy rate.
Expected Fed rate hike pushes Treasury yields up, lowering bond prices.
