Deutsche Bank economists expect the Fed to raise rates by 25bp in both September
and December. Fed Chair Kevin Warsh’s Jackson Hole remarks stressed the need to
bring inflation back to a 2% target and send a clearly hawkish signal. Deutsche
Bank says the threshold to avoid a September 25bp hike is high unless incoming
data are “significantly weaker than expected.” Markets repriced rapidly: CME
shows probability of cumulative 50bp+ by December rose to 51% from 29% a day
earlier; probability of only 25bp total is 38% and of no change is 11%. Bets on
a September hike firmed after Warsh’s speech.
