Before the Warsh Speech: Market Was Pricing a Hike in December, Not September

Today at 14:00 GMT (10:00 US Eastern Time), Kevin Warsh will deliver his first Jackson Hole opening speech as Fed Chairman. The symposium is meeting on August 27-29 at Jackson Lake Lodge in Wyoming; we previously covered the symposium itself and this year's theme in a separate article. The question here is not the symposium, but what the speech will do to today's pricing.

The timing of the speech on the calendar is important regardless of its content: there are exactly 19 days left until the September 16 FOMC meeting. In other words, Warsh is speaking in one of the last large-scale communication channels to be established with the market before the decision.

However, the main subject of this article is not the speech itself. The main subject is a distinction currently sitting in market pricing and overlooked in most comments: the market largely believes that an interest rate hike will happen, but does not believe when it will happen. These two statements are true at the same time, and the gap between them explains the real function of today's speech.

What exactly does the difference between 33.9% and 74% convey?

According to CME FedWatch, the probability of a 25 basis point hike at the September 16 meeting is 33.9%. At the same time, the probability of at least one hike being made by the end of December is 74%. Rate cuts, on the other hand, are virtually absent from pricing — a distinct shift in mindset compared to discussions in the first half of the year.

When you put these two numbers side by side, a single story emerges. The market thinks the current 3.50-3.75% target range will not end the year as it is; meaning there is a strong consensus on direction. In contrast, the one-third probability assigned to September shows that the vast majority of participants assume the Fed will not move without seeing more data.

The practical meaning is this: the September meeting is positioned from the market's perspective not as a "decision meeting" but as a "signal meeting." Even if interest rates remain unchanged, how the decision text and projections frame the October-December window could move pricing more than the September decision itself.

This type of structure typically leads to the following in option and futures markets: while near-term volatility expectations remain relatively suppressed, the risk premium stays elevated across maturities extending to year-end. A single speech can bring these two ends closer together or widen them even further.

Neither inflation is coming down nor growth is collapsing: The Fed's two-way pressure

What these three data points tell together is more important than what they tell individually. If we reduce the table above to a single sentence: inflation is not coming down, and growth is not collapsing. Inflation is significantly above the target and appears to have halted its decline; growth, while slowed down, has not collapsed. From a central banking perspective, this is one of the weakest combinations for a rate cut.

The argument for a cut usually relies on one of two pillars: either inflation is convincingly converging toward the target, or the economy is cooling fast enough to warrant a cut. Currently, neither is available. A core metric stuck at 3.3% removes the first pillar; a 1.5% growth figure is weak, but not a number calling for urgent intervention.

The fact that Logan, Hammack, and Kashkari dissented in favor of a 25 basis point hike despite interest rates being held unchanged at the July FOMC is also consistent with this picture. There is a visible minority within the Board advocating for a hike, and recent data has not weakened this minority's argument.

On the other hand, the other half of the picture is weak, and that half explains why September is assigned only a one-third probability. July non-farm payrolls came in at -23,000, accompanied by significant downward revisions in previous months. July retail sales contracted at -0.6%. If employment and consumption are weakening at the same time, rushing into tightening just because inflation is high would be a risky choice.

That is why the pressure facing the Fed is two-sided. The price stability side points to tightening, while the employment side points to waiting or even easing. As long as this dilemma remains unresolved, the most rational institutional behavior is to collect more data before making a move.

The calendar supports this as well. On September 4 at 12:30 GMT, US non-farm payrolls, average hourly earnings, and the unemployment rate will be announced (previous values: 57,000 payrolls, +0.1% earnings, 4.2% unemployment). This report is the single most decisive piece of data before the September 16 decision. The most concrete reason why the September probability remains at 33.9% is that the market does not want to take a position without seeing this report.

Within the same week, US ISM manufacturing PMI (previous 55.6) on September 1, ADP employment (previous 44,000) on September 2, and ISM services PMI (previous 54.1) on September 3 are also coming. Following this calendar through the Economic Calendar tool and reading each piece of data not individually, but by looking at whether they confirm each other, yields more accurate results.

The function of Warsh's speech is a timing signal, not direction

When everything explained so far comes together, what today's speech serves for the market becomes clear. There is already a broad consensus on direction: the 74% December probability shows that the assumption of a hike is largely priced in. Therefore, Warsh saying "inflation is high, we are cautious" alone does not carry new information.

What will carry new information is the timing. The only component of the speech that could be valuable to the market is offering a hint about that gap between September and December. Is there an emphasis on urgency, or an emphasis on patience? Is data dependency highlighted, or the persistence of inflation?

There is another point to consider here: this year's theme of the symposium is payments and financial innovation. So the natural content of the opening speech could be structural and institutional topics; a section directly on the monetary policy stance might not be present at all. This possibility also explains why "saying nothing definitive" is the most likely among the scenarios below.

What happens depending on what comes out of the speech: three scenarios and transmission mechanisms

The scenarios below are not predictions. Each describes which chain will operate and which technical levels will come to the agenda when a specific tone emerges. The goal is not to know what will happen when the news comes, but to be able to quickly read what is happening.

• –Hawkish tone (emphasis on inflation persistence, phrasing implying urgency): September probability shifts upward from 33.9%, short-term yields rise, dollar strengthens across the board. In gold, the first area to come to the agenda is $4,530 (around the 10-day moving average); if this is broken, $4,450 and then $4,411 will be discussed. On the Bitcoin side, down from the $79,027 level, support in the lower band of $79,000 is tested.
• –Dovish tone (emphasis on employment weakness and two-way risk): September probability recedes, and December pricing softens somewhat as well. If the dollar retreats, room opens for EUR/USD to recover upward from around 1.1650. In gold, an attempt to hold above $4,576 and a move toward $4,700 resistance come to the agenda; unless $4,700 is overcome, the $4,800-$4,900 band remains an early target.
• –Saying nothing definitive (most likely scenario — focusing on payments and financial innovation due to the theme, using no new expressions on policy stance): Pricing remains largely in place, volatility spikes during the speech and dampens quickly afterward. In this case, gold continues to be trapped within the $4,530-$4,700 band, and the initiative is handed over to the September 4 employment report.
• –What the three scenarios have in common: none determines the levels on its own. What determines them is whether the speech narrows the September-December gap. Levels are where this change is measured, not its cause.

The invisible costs of trading during news events

The levels above are meaningful under normal market conditions. In the first minutes of 14:00 GMT, however, market microstructure changes, and this shift can turn even a trade that correctly predicted the direction into a loss. Typically, the following happen immediately before and after news releases: liquidity providers pull back from the order book, spreads widen several fold, execution prices differ from those displayed on screen, and price skips over certain levels without trading at all.

The most critical point is the last one. A stop order turns into a market order when price reaches that level; at a level skipped by a gap, the order executes not where the stop was placed, but where the gap ends. That is, the presence of a stop does not mean that the loss will remain limited to the stop level.

Concrete protection checklist:

• –Determine position size not based on your calculations under normal conditions, but under the assumption of a multi-fold widened spread and slippage. Measuring this scenario in advance with a Position Calculator is far more reliable than making decisions during a news release.
• –Make it a rule not to open new positions a few minutes before the announcement time; watching the first wave and evaluating the second move often reveals a much clearer picture.
• –Consider reducing leverage on existing positions prior to the news — margin level is the metric that deteriorates fastest during a volatility spike.
• –Assuming the stop could be gapped over, limit your acceptable loss not by the stop distance, but by the position size.
• –Write the speech time into your intraday plan in advance. Tools like XM's interactive economic calendar make marking these times easy; additionally, being able to trade in small steps at the micro lot level allows for gradual adjustment of position size during volatile sessions.
• –Choose order types consciously: limit orders for an approach demanding a fixed price, and market orders for an approach demanding fast execution carry different risks, and this difference amplifies during news releases.

What is the main thing to watch after the speech?

What really needs to be watched at 14:00 GMT today is not how much gold moves in the first five minutes. What needs to be watched is where the September probability moves from 33.9% after the speech, and whether the 74% probability through December is maintained. If the distance between these two figures narrows, it means the market is beginning to be convinced about timing; if the distance remains the same, it means the speech carried no new information and the initiative moves directly to the September 4 jobs report.

Prices are the result of this shift, not the cause. Supports at $4,530 and $4,450 in gold, resistance at $4,700, the 1.1650 region in EUR/USD, and the $79,000 lower band in Bitcoin — all of these are indicators where shifts in interest rate expectations are read. Tracking levels alone is like looking at a thermometer and trying to guess the cause of a fever.

Next week will bring additional inputs to this picture: September 1 ISM manufacturing PMI and Eurozone flash CPI, September 2 ADP employment and Bank of Canada decision, September 3 ISM services PMI, and September 4 US jobs report. The path leading to the Fed's September 16 decision passes through the aggregate of these data, not a single speech.

This content is for general information purposes only and is not investment advice; leveraged transactions involve high risk and you may lose all of your capital.