Fed’s Warsh Opens Door to September Rate Hike, Sending Treasuries Higher and Crypto Lower

Federal Reserve Chair Kevin Warsh on Friday delivered his clearest signal yet that the central bank is prepared to raise interest rates again if inflation does not return decisively to its 2% target, triggering a sharp repricing of rate expectations across financial markets.

Speaking at the Fed’s annual economic symposium in Jackson Hole, Wyoming, Warsh said recent inflation readings show only modest cooling and “do not tell me that underlying trends have meaningfully improved.” He warned that “we have work to do” unless the Fed sees prices moving toward its objective “clearly and at sufficient speed.”

The remarks pushed the probability of a rate hike at the Fed’s Sept. 15-16 meeting to roughly 60%, according to Fed funds futures data tracked by CME Group, compared with about 35% the previous day. Multiple outlets reported that traders now see the decision as essentially a coin flip, up from roughly one-third before the speech.

The yield on the two-year Treasury, which closely tracks expectations for the Fed’s policy rate, rose to 4.30% from 4.22%, its biggest one-day move since June. Longer-term 10-year and 30-year yields were mostly flat, suggesting investors do not expect a prolonged tightening cycle.

Equities Hold Up, but Crypto Tumbles

The S&P 500 slipped about 0.3% on Friday after initially trading higher, trimming its weekly gain. The Dow Jones Industrial Average was flat, and the Nasdaq Composite fell 0.3%, weighed by a 4% drop in Nvidia shares as the semiconductor sector reversed some of its post-earnings rally.

Yet the Cboe Volatility Index (VIX) fell to as low as 14.1, its lowest level of the year, according to CNBC. “The VIX is low because a Fed that is vigilant on inflation without having to hike aggressively is seen as positive for the economy,” Ben Emons, managing director at Highline Asset Management, told CNBC. The spread between six-month and one-month S&P 500 options is in the 96th percentile of the past year, indicating that while near-term volatility has receded, uncertainty about the path of rates lingers for later months.

Bitcoin and gold each fell about 3% on Friday, according to multiple reports, as higher rate expectations made yield-bearing assets more attractive relative to non-yielding alternatives.

A Hawkish Signal Without Forward Guidance

Warsh, who succeeded Jerome Powell in late May, used his first major policy speech to stress that fighting inflation remains the Fed’s priority. He specified that short-term interest rates are the central bank’s “predominant tool,” clarifying confusion that followed his July 29 press conference.

However, he reiterated his skepticism about providing “forward guidance,” arguing that it limits the Fed’s flexibility. Jon Faust, an economist at Johns Hopkins and a former Powell adviser, said Warsh “found a way to convey that if necessary he would support raising rates.” Michael Strain of the American Enterprise Institute countered that Warsh has talked tough before without acting and that Friday’s speech “doesn’t provide any clearer guidance on the timing” of any move.

Warsh pointed to data showing that 54% of goods and services tracked by the government have risen 3% or more over the past year, well above the pre-pandemic norm of 32%. The Fed’s preferred inflation gauge stood at 3.7% in July, well above the 2% target.

Contrast With Treasury’s Bessent

Warsh’s hawkish stance came against a backdrop of rising long-term yields, which reached a 19-year high on the 30-year bond last week. Treasury Secretary Scott Bessent responded on Aug. 19 by announcing the Treasury would at least double its purchases of long-term bonds for two months starting Sept. 9, an intervention aimed at lowering long-term rates. The divergence between Bessent’s action and Warsh’s tightening signal has drawn criticism. Billionaire investor Stanley Druckenmiller wrote in a Wall Street Journal op-ed that Bessent’s effort “tamp down the market’s reaction to America’s increasing indebtedness” and that “governments defending prices against fundamentals always lose,” according to the Christian Science Monitor.

The Fed chair’s speech did not commit the central bank to a September hike, but it reset market expectations for the remainder of 2026.