Warsh rate hike in play for September FOMC despite 23,000 July job losses
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Federal Reserve Chair Kevin Warsh may still raise interest rates at the September FOMC meeting, analysts say, despite July’s unexpected loss of 23,000 jobs. The weak jobs data had heightened expectations for a hold, but Warsh’s commitment to driving inflation down to 2% and his dismissal of single data points keeps a hike in play. The CME FedWatch Tool shows a roughly 50% probability of an increase next month.
Warsh’s Inflation Mandate
Warsh has consistently stated he will not be swayed by a single data point, citing last month’s inflation report when annual inflation cooled from 4.2% to 3.5% yet he called it just ‘one data point.’ He remains committed to bringing inflation down to 2% with no soft target, making a rate hike the primary tool. The CME FedWatch Tool currently assigns a roughly 50% probability to a rate increase at the September FOMC meeting.
July Jobs Report Miss
The July employment report showed a loss of 23,000 jobs, sharply missing expectations of an 80,000 gain. This marks a significant downturn and suggests the economy may be weaker than many believed. Despite the miss, Warsh has signaled that monetary policy will not hinge on isolated releases, maintaining focus on broader inflation trends.
Equity Market Vulnerability
The S&P 500 has gained 13% year-to-date and doubled since 2023, hitting record highs on elevated valuations. A rate hike could increase business costs and weigh on stock prices, potentially triggering a correction. Even without a rate increase, the market may be overdue for a pullback given its extended rally, prompting some investors to rotate into value assets.
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