The real action is now centered on the Fed’s Sept. 16 federal funds rate decision. CME’s Fedwatch Tool, which turns federal funds futures trading action into implied policy odds, gives a 25-basis-point hike a 57% chance, lifting the target range to 3.75%-4%. Staying parked at the current 3.5%-3.75% range gets just 43%. Presently, there’s a great deal of uncertainty, and right now, FOMC decision forecasts are no different than drawing straws.
Fedwatch Flips as September Hike Bets Catch Fire
The move becomes harder to dismiss when compared with where traders stood barely a week earlier. CME data put the probability of a hike at only 39.9% on Aug. 21. Of course, by Aug. 28, after the Jackson Hole speech, it flipped to 57%, while bets on a September rate cut had essentially been wiped off the board.
Prediction markets have not completely bought the hawkish trade. As of this weekend, Polymarket traders put a Fed hold at 52% and a 25-basis-point hike at 48%. More than $66.6 million has changed hands on this particular wager, while the once-familiar rate-cut bet now commands odds of a measly 1%.
On the prediction marketplace, Kalshi, traders are staring at nearly the same coin toss-style odds. It’s September Fed market, carrying more than $23.8 million in volume, puts no change at 52% against 48% for a quarter-point hike.
On the other hand, another Kalshi betting contract gives the Fed a 67% chance of hiking the FFR sometime before 2027.
Warsh Puts Sticky Inflation Back in the Crosshairs
All of this data shifted massively after Warsh’s Jackson Hole Economic Policy Symposium keynote, where he carefully avoided promising a September hike while repeatedly returning to stubborn inflation and the Fed’s responsibility to bring prices under control.
“There should be no misunderstanding: The Fed’s price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target,” Warsh stressed. He also made clear that short-term interest rates remain the Fed’s main weapon for getting there.
The numbers Warsh laid out explain why traders heard a hawkish message. The Fed’s preferred 12-month PCE inflation gauge is running hot at 3.7%, while the six-month reading sits at an even spicier heat at 4.1%. Neither number is remotely comfortable beside the central bank’s fixed 2% target. Although, some Fed critics believe that the 2% target will never be reached again.
Warsh also described an economy giving the Fed little reason to panic about higher rates. Business investment is climbing rapidly, particularly in the artificial intelligence (AI) sector, S&P 500 profits are up more than 20% over the past year, and real consumer spending has gained more than 2% over four quarters. Unemployment, meanwhile, remains at 4.1%.
Markets Stare Down a September Coin Toss
That mix is exactly what makes September uncomfortable for federal funds rate doves. A higher FFR cools demand and inflation, and an economy still producing solid growth and employment gives policymakers considerably more breathing room to tighten without immediately breaking the labor market.
Warsh still refused to lock himself into a hike, saying:
“I stand here today committed to a discipline, not to a decision.”
The message was deliberate: Markets can handicap September all they want, but the Fed does not intend to hand traders the answer weeks before the meeting. For investors, September has become a genuine coin toss or fifty-fifty chance with real money behind both sides. CME futures favor a hike, while the prediction markets Polymarket and Kalshi narrowly bet on a hold.
Inflation and labor reports now carry even more weight, and either could tip the scales before Fed officials meet in mid-September.
