Markets see Warsh endorsing a rate hike in September. Not everyone is convinced

Just a few carefully chosen words from Federal Reserve Chairman Kevin Warsh convinced markets that he was serious about inflation and ready to recommend an interest rate hike in just a few weeks.

The path in that direction, though, still looks cluttered, with plenty of incentive left to convince Warsh and his fellow central bank policymakers that a move isn't necessary yet.

Following Warsh's keynote speech Friday at the Fed's annual Jackson Hole, Wyoming symposium, markets flipped on rate expectations. Prior, they expected little likelihood of a rate increase until at least December; after that changed to a high probability of one when the Federal Open Market Committee meets in a little more than two weeks.

However, some observers warned that hype for a hike is unjustified.

"It is my belief that we've seen a supply shock, and traditionally you don't raise into a supply shock unless you see second- or third-order effects," Treasury Secretary Scott Bessent told CNBC on Monday in an interview from the G20 summit in Asheville, N.C. "And we are seeing the core inflation has remained very, very restrained."

Warsh, though acknowledging that inflation numbers have been soft lately, said the progress isn't enough and does "not tell me that underlying trends have meaningfully improved."

"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," he added.

The sum of his remarks caused a sharp repricing in hike probabilities. Odds for a move at the Sept. 15-16 meeting jumped to 66.1% on Monday, nearly double where they were before Warsh spoke, according to the CME Group's FedWatch .