Traders now see a 60.6% chance the Federal Reserve raises interest rates at its Sept. 16 meeting, up from 44.4% a month earlier. Fed Chair Kevin Warsh's Jackson Hole remarks on inflation, paired with the August jobs report, are driving the shift, and a hike could test Wall Street's AI-fueled rally.
Odds of a hike keep climbing
The CME Group's FedWatch Tool, which tracks 30-day Fed Funds futures prices, put the probability of a quarter-point hike at 44.4% as of Aug. 7. By the early hours of Sept. 8, that figure had jumped to 60.6%.
That pattern extends beyond the September meeting. The odds of a hike at one of the year's three remaining FOMC meetings — Sept. 16, Oct. 28, or Dec. 9 — now sit above 85%, up from roughly 77% on Aug. 7.
Why the Fed's tone shifted
Two developments explain the move. The Sept. 4 jobs report showed 162,000 jobs added in August, with unemployment holding at 4.1%. That labor market strength helps keep inflation pressures alive after prices hit a three-year high of 4.2% in May.
Fed Chair Warsh's Jackson Hole comments on Aug. 28 mattered more. According to The Motley Fool: "The Fed's predominant focus right now should be on prices," Warsh said, and he stated for the first time that inflation must reach the Fed's 2% target quickly. That added time element makes an interest rate hike more likely.
A hike could test the AI-driven rally
Through the Labor Day weekend, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite had risen 11%, 13%, and 14% this year.
That rally rests heavily on artificial intelligence infrastructure spending, much of it financed with debt. A rate increase would raise the cost of financing that build-out. The market also enters this stretch already stretched: stocks began 2026 as the second-priciest stock market in history, leaving little room for the AI expansion to slow without a broader reset in valuations.
Source: Fool
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