Probability of Fed Rate Hike in September Rises to 60% Following Warsh Speech

The probability of the US Federal Reserve raising interest rates during the September meeting jumped from around 35% to 60% following the hawkish speech delivered by Kevin Warsh at the annual Jackson Hole conference.

This surge in expectations reflected the shock that hit the markets, as investors were betting on the Fed pausing rate hikes in the near term. The sharp shift in expectations led to a noticeable rise in US Treasury bond yields.

Analysts base their assessment of the likelihood of the Fed decision on Fed Funds Futures contracts, which are financial derivative instruments that allow investors to hedge against or speculate on interest rate changes.

Experts stress that any rate hike in September will exert doubled pressure on emerging markets, including Arab markets, as it causes capital flows toward the dollar and increases external debt costs for countries with budget deficits.

What do these terms mean?

Interest Rate Derivative Contracts: Investment tools allowing investors to predict or hedge against interest rate decisions. Analysts calculate the probability of central bank decisions from them before they are made.

Treasury Bond Yields: The return an investor receives from buying US government bonds. A rise in yields implies expected interest rate hikes, which attracts capital and strengthens the dollar.

Emerging Markets: Rapidly growing economies that are more vulnerable to external shocks such as US interest rate hikes, encompassing most countries in the Middle East, Africa, and Asia.