September 2026 marks a notable shift in the Federal Reserve's internal monetary policy stance, as Chairman Warsh and Governor Barr have successively issued firm anti-inflation signals, completely reversing the market's earlier expectations of easing. With U.S. inflation persistently elevated for five consecutive years and the economic foundation demonstrating notable resilience, the probability of a rate hike at the Fed's September policy meeting has climbed sharply, ushering in a fresh round of interest rate repricing across global financial markets and amplifying uncertainty surrounding the future trajectory of monetary policy and interest rates.
Jackson Hole Sets the Tone: Warsh Signals a Firm Anti-Inflation Stance
The primary catalyst behind this policy expectation reversal is Chairman Warsh's impactful address at the Jackson Hole global central bank symposium. Departing from his relatively measured tone in July, Warsh delivered a distinctly hawkish message this time, underscoring that the current underlying inflation in the U.S. has not shown substantive or sustained improvement. He made it clear that the Fed must be one hundred percent certain inflation is declining at a clear and adequate pace toward the 2% policy target. As long as this condition remains unmet, the Fed will find it necessary to continue tightening monetary policy to complete the anti-inflation mission. This statement directly dispelled market hesitancy and fundamentally reshaped short-term rate expectations.
Unified Leadership: Barr Defines the Triggers for a Rate Increase
Following the Chairman's lead, the Fed's core leadership has achieved full alignment. Fed Governor Barr reinforced the tightening stance, explicitly stating that U.S. inflation has remained in an excessively high range for too long, with the high-inflation issue persisting for five years and continuously eroding economic stability and monetary credibility. He laid out a clear policy execution framework: if forthcoming inflation data fails to cool sufficiently or the downward trend disappoints, the Fed will decisively initiate a rate hike; conversely, if the data confirms inflation is steadily converging toward the 2% target, the central bank can pause operations and prudently assess policy effectiveness. Barr also affirmed the resilience of the current U.S. economy, noting that artificial intelligence industry investment continues to underpin growth, the job market remains stable, and the unemployment rate stays low. The economic fundamentals can fully absorb monetary tightening, providing ample justification for the Fed to raise rates.
Market Repricing in Full Swing: September Hike Probability Surges
The successive hawkish remarks from the two key officials have rapidly intensified market expectations for a rate increase. According to data from the CME FedWatch tool, the probability of a 25-basis-point rate hike at the September 15-16 FOMC meeting has soared to 66.1%, nearly doubling from the level before the Jackson Hole symposium. The current benchmark rate range of 3.50%-3.75% is now highly likely to be revised upward. Several major investment banks have simultaneously updated their forecasts. Bank of America stated that Warsh's remarks have significantly raised the bar for the Fed to hold rates steady, with the focus squarely on inflation trends rather than single short-term data points. This implies that unless inflation shows an unexpectedly sharp decline, a September rate hike would be all but certain. Should the Fed choose to defer this time, it would undermine the credibility of its policy framework.
Ongoing Bull-Bear Battle: Market and Policymakers Diverge
It is worth noting that market and institutional disagreements over the rate hike have not fully dissipated, and the policy tug-of-war continues. Opposition to a hasty rate increase stems from two main fronts: on one side, U.S. Treasury Secretary Bessent publicly asserted that this round of inflation is primarily driven by supply-side shocks. Without evidence of second- or third-round inflation pass-through effects, blindly raising rates is unnecessary, especially as core inflation is already showing signs of convergence, ruling out the need for excessive tightening. On the other hand, analysts at Citigroup and JPMorgan point out that recent economic data has released cooling signals, with non-farm payrolls weakening for consecutive months, inflation moderating at the margin, and growth momentum retreating. There is no fundamental basis for an emergency rate hike. The July FOMC meeting had not yet formed a consensus on raising rates, September will likely see a continued wait-and-see approach, and the likelihood of sustained hikes within the year remains low.
Critical Data Window: Multiple Core Indicators to Determine Policy Direction
The Fed has now entered the quiet period before the September policy meeting, and a series of forthcoming key economic data will directly determine the final policy outcome. This week will see the release of non-farm payroll data, with core CPI, PCE inflation, retail sales, and housing data due just ahead of the meeting. The core PCE reading is particularly crucial. Currently, the overall U.S. PCE inflation rate hovers at 3.7% and core PCE sits at 3.3%, showing some improvement from earlier levels but still significantly above the 2% policy target, underscoring the persistent stickiness of inflation. The strength of the labor market and marginal shifts in inflation will serve as the core basis for Fed officials' final votes.
Summary: Consecutive Hawkish Fed Statements Suggest Gold Prices May Have Passed Their Worst Moment
Overall, the Fed's core policy focus has now fully returned to fighting inflation, with official rhetoric, market pricing, and policy guidance all tilting decisively toward tightening. Short-term upside risks to interest rates are pronounced, and the normalization of higher rates will become a defining feature of U.S. monetary policy in the period ahead. The recent sharp pullback in gold prices has been continuously pricing in this shift. As of 21:53 Beijing time, spot gold is trading at $4,362 per ounce.
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