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Key points

On Friday morning, the futures market priced only a 15% probability of a rate hike in October. Other senior Fed officials have signaled a preference for keeping rates unchanged. Fed Chair Kevin Warsh has abandoned traditional forward guidance and drawn a clear line between himself and other officials' rate projections. Stubbornly high inflation and relatively loose financial conditions still constitute potential reasons for another rate hike. On September 16, 2026, in Washington, D.C., after the conclusion of the two-day Federal Open Market Committee (FOMC) meeting, Fed Chair Kevin Warsh attended a press conference. Traders are mostly betting that the Fed will not raise rates when it meets later this month. But that judgment is partly based on an ingrained understanding of how the Fed communicates — an old convention that may no longer apply under the new chair. Warsh still retains room to choose a rate hike.

It should be noted that on Friday morning at an International Monetary Fund event in Bangkok, Warsh made clear that there are two possible outcomes for the October meeting. Even so, his remarks still reinforced market expectations: the Fed will most likely pause. As of Friday morning, the CME FedWatch Tool showed a 15% probability of a rate hike in October. Previously, multiple Fed officials, including the chair's core deputy, publicly stated a preference to stay put, and the market formed the above judgment based on that. Investors have ample reason to expect the Fed to choose to wait and see. But on the inflation data front, there is also a case that Warsh could use to push the FOMC to choose a rate hike on October 28. Influenced by past Fed experience, investors have overlooked this possibility.

But this chair has already broken with convention: he no longer reveals policy intentions to the market before the committee meets. This means that investors being complacent about the probability of an October rate hike carries risk. This optimistic market sentiment is based on several assumptions. First, the chair's deputy will speak for him, or at least will not publicly oppose his stance. That was indeed the case in the past, but the situation may have changed now. In recent weeks, Fed Vice Chair Philip Jefferson and New York Fed President John Williams have both spoken, saying the urgency to raise rates is not strong. The market quickly repriced and became convinced that rates would be held in October. Warsh, Jefferson, and Williams form the informal "troika" of the Fed's top leadership. Even if Warsh does not tend to disclose his own views, he could have coordinated his position with the other two. But the outside market cannot confirm whether the traditional practice of the New York Fed president and the Fed vice chair speaking publicly remains valid after the leadership change.

The second assumption: Warsh largely agrees with the FOMC's assessment of the economy. Speaking about economic conditions since September, Warsh said in Bangkok: "Reality is broadly in line with our expectations." This can be interpreted as: the recently elevated CPI and PPI inflation data have not overturned the views in the Summary of Economic Projections (SEP) released at the September Fed meeting. At that time, the median expectation of most officials was one more rate hike within 2026 — that is, a pause in October and a hike in December. But Warsh deliberately distanced himself from the SEP at the September press conference. He told reporters: "These are not my projections." In his closely watched speech at the Jackson Hole conference at the end of August, Warsh elaborated on his own unique economic judgment: economic growth is strong, and inflation is more concerning than the labor market. This hawkish stance helped the FOMC approve a rate hike unanimously in September. That hawkish view was largely based on his observation that credit conditions remain loose. The Chicago Fed National Financial Conditions Index has edged up about 0.05 points since the Jackson Hole conference, but the reading is still negative, meaning that while financial conditions have tightened somewhat, they remain generally loose overall.

Does Warsh believe that spontaneous market tightening has already done part of the central bank's work? As he said on Thursday, "some of the monetary stimulus has been withdrawn" — is that degree already sufficient? We can only speculate; the answer will be revealed at the FOMC press conference. Turning to inflation data: through September, CPI rose 3.7% year over year, and PPI rose 6.3% year over year. Based on the new data, the core personal consumption expenditures (core PCE) index that the Fed focuses on will reach 3.1% year over year; affected by energy prices, the headline PCE inflation reading will be even higher. Warsh has repeatedly made clear that such an inflation level is unacceptable. Some economists have asked whether Warsh would tolerate inflation above the 2% target. He was very firm at Jackson Hole: "Do not misunderstand — the Fed's 2% PCE inflation target is a firm, fixed target." It can be seen that Warsh is still figuring things out while on the job. He may gradually realize that a Fed chair cannot go it alone and must rely on internal staff and all FOMC members. Likewise, he will discover that the market will not spontaneously give clear signals independent of the Fed. If the market broadly expects rates to stay unchanged, and the Fed instead chooses to raise rates, it will inevitably trigger sharp market volatility. In the past, officials like Jefferson and Williams would step forward to guide the market and avoid such a situation. If officials have already given the market a clear signal but ultimately deliver a surprise rate hike, it would damage officials' credibility and make Fed policy harder to predict. But how Warsh will weigh this is still undetermined. At the October meeting, on the one hand, with AI-related spending hot and inflation data high, Warsh may use these arguments to persuade wavering committee members to support a rate hike; on the other hand, he may also watch the situation unfold and move toward the committee's middle ground. Warsh still has the possibility of delivering a surprise outcome, and assuming everything will go as the market expects is risky.