Expectations for a September Federal Reserve rate increase have climbed after Kevin Warsh took a hawkish stance at Jackson Hole, but market pricing indicates that traders still do not view a hike as a certainty.

CME FedWatch data currently show a 58% probability of a September rate increase. That remains below the 60%-70% range generally associated with a strong likelihood of a policy move and is significantly lower than the 90% level typically seen when markets consider a hike virtually guaranteed.

Jim Bianco of Bianco Research described the next Fed meeting as leaning toward a rate increase rather than being a settled decision.

Warsh’s Friday remarks focused heavily on persistent inflation. He said price pressures were more concerning than the labor-market picture and suggested inflation was unlikely to return to the Fed’s 2% target without additional action.

He cited PCE inflation of 3.7%, considerably above the central bank’s target. Warsh also pointed to the breadth of price increases, saying more than half of the goods and services tracked by government data had risen at least 3% over the past year. Before the pandemic, that share was closer to one-third.

His comments prompted a quick shift in expectations for a possible 25-basis-point September hike. The federal funds target range currently sits between 3.5% and 3.75%.

Bitcoin dropped roughly 3% after the speech, falling below $77,000 after its strong move from around $63,000 to above $80,000 earlier in August. Gold also declined, while the dollar and Treasury yields moved higher.

Analysts See Limited Tightening Risk

Not all market participants believe the September meeting signals a major turn toward tighter monetary policy.

Investment firms including ABN AMRO Investment Solutions and Brandywine Global Investment Management have expressed reservations about the strength of the rate-hike outlook.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, said a potential rate increase could be aimed at calming Treasury markets rather than delivering conventional monetary tightening.

In Brooks’ view, a hike could demonstrate that the Fed remains committed to controlling inflation, potentially lowering the additional yield investors require to hold longer-dated government bonds. This could help limit upward pressure on Treasury yields.

He argued that a September move could be intended to stabilize the 10-year Treasury yield and reduce the risk of another sharp bond-market decline.

Such a move would therefore have a different effect from a typical tightening cycle. Rather than deliberately restricting financial conditions, it could be used to reinforce confidence and keep markets orderly.

BTC and Gold Maintain Potential Upside

The 58% probability of a September hike means the market has yet to fully commit to the tightening scenario. If upcoming economic indicators do not push the odds materially higher, bitcoin and gold could continue to benefit.

Bitcoin has risen roughly 23% during August, while gold has gained around 10%. Both assets have held up despite higher Treasury yields, a stronger dollar and uncertainty surrounding the Fed’s next decision.

Attention now turns to upcoming inflation and employment data. Stronger-than-expected figures could increase the likelihood of a September hike, while softer readings could ease rate concerns and provide additional support for risk assets.