Let’s get one thing straight: the market is not pricing in a September rate hike with anything close to certainty. The probability sits at 58%. That’s not a coin flip, but it’s also not the 90% panic level some headlines have been screaming.
So why does it feel like everyone’s bracing for a tightening? Blame Kevin Warsh. The former Fed governor gave a hawkish speech at Jackson Hole on Friday that sent a jolt through the markets. Stock futures slipped, and the instant narrative was that the Fed was about to get serious again. But the numbers don’t back that up. The CME FedWatch Tool, which tracks rate hike odds based on fed funds futures, shows the September probability actually dropped slightly after the speech. It was hovering around 60% before; it’s now at 58%.
My read: the fear is overblown. The market is telling us something different from the pundits. And that’s worth understanding if you’re trying to figure out what this means for your mortgage, your savings, or your portfolio.
The 58% Number That Tells a Different Story
Here’s the thing about probabilities: they’re not forecasts. They’re snapshots of what traders are betting on right now. A 58% probability means that for every dollar being wagered, about 58 cents is on a hike and 42 cents is on no hike. That’s not a mandate. It’s a narrow edge.
Compare that to the summer of 2023, when the market was pricing in a 90%+ probability of a hike in July. That was a near-certainty. The Fed delivered. Now we’re at 58% in September. That’s a different ballgame. It suggests the market sees a real chance the Fed holds steady, especially if inflation data softens or the labor market shows cracks.
And here’s the kicker: the Fed itself has been signaling it wants to be data-dependent. Chair Powell has been clear that they’re not on a pre-set path. So a 58% probability is actually a healthy reflection of uncertainty, not a strong signal of action.
Why Warsh’s Speech Didn’t Move the Needle
Kevin Warsh gave a hawkish speech at Jackson Hole that revived rate hike fears, at least for a few hours. Stock futures slipped, and the talking heads were all over it. But the market quickly rebounded. Why? Because Warsh hasn’t been a voting member of the Fed for years. His views are influential, sure, but they’re not policy. The market knows that.
Think of it like this: your neighbor tells you they think it’s going to rain tomorrow. You check the weather app, and it says 40% chance of rain. You might still grab an umbrella, but you’re not canceling your picnic. The neighbor’s opinion is noise. The weather app is the data. The FedWatch probability is that data.
So when Warsh talks, the market twitches. But it doesn’t reprice. The 58% probability held steady. That’s the real story.
What This Means for Your Mortgage and Savings
If you’re a homeowner or a homebuyer, a 58% probability of a September hike is meaningful but not decisive. Mortgage rates have already been elevated, and another quarter-point hike would push them up a bit more. But the bigger driver is the expected path of rates over the next 12 months, not just one meeting. If the Fed pauses in September, that could signal they’re near the peak. That would be good news for rates.
For savers, a rate hike would mean slightly higher yields on high-yield savings accounts and CDs. But again, the difference between 58% and 42% is not huge. The more important question is whether the Fed will cut rates in 2024. Right now, the market doesn’t see cuts until mid-2025 at the earliest. That’s a long time to wait for relief.
So what should you do? Don’t make a big bet on a September hike. The uncertainty is real, and the market is saying it’s a toss-up. If you’re shopping for a mortgage, you might want to lock in a rate now rather than gamble on a possible pause. If you’re saving, consider locking in a CD rate now before rates potentially go higher.
The Bigger Picture: A Pause, Not a Pivot
Look, the Fed is still fighting inflation. The core PCE index, which the Fed watches closely, is running at 2.6% as of June. That’s down from the peak but still above the 2% target. So the Fed isn’t declaring victory. But they’re also not in a hurry to keep hiking aggressively. The economy is slowing, and the labor market is cooling. The odds of a soft landing have improved, but they’re not guaranteed.
What the 58% probability tells me is that the market is pricing in a pause. Not a pivot, not a cut, just a pause. The Fed could hike in September, but they could also hold. The data between now and then will decide. The next jobs report and August CPI print will be key. If inflation comes in softer than expected, that probability could drop to 40% or lower. If inflation surprises to the upside, it could jump to 80%.
So don’t get caught up in the Warsh hype. The bottom line is that September is not a done deal. The market is saying it’s a coin flip. And that’s a very different story from the panic we saw in the headlines.
Keep your eyes on the data, not the speeches. The numbers will tell you what’s really happening.
Frequently Asked Questions
Will the Fed definitely raise rates in September?
No. The current probability from the CME FedWatch Tool is 58%, which means the market sees a slightly higher chance of a hike than a hold, but it’s far from certain. The Fed will base its decision on the data between now and the September meeting, especially inflation and employment reports.
What does a 58% probability mean for my investments?
It means uncertainty is high. Markets don’t like uncertainty, but they’ve already priced in a decent chance of a hike. If the Fed actually hikes, the reaction might be muted. If they hold, stocks could rally on the relief. The best approach is to avoid making big bets based on a single meeting. Focus on your long-term allocation.
How does the FedWatch probability work?
The CME FedWatch Tool calculates the probability of a rate change by analyzing the prices of 30-day fed funds futures contracts. These futures reflect the market’s expectation of the federal funds rate at the end of the month. The tool then compares that to the current rate to derive the probability of a hike or cut. It’s a real-time, market-based estimate.
