Fixed-income investors at firms including ABN AMRO Investment Solutions and Brandywine Global Investment Management are expressing skepticism about imminent tightening, even as swap markets increasingly price in a move at the Federal Reserve's next meeting. Following a closely watched address last Friday in which Fed Chair Kevin Warsh reiterated his commitment to curbing inflation, derivatives traders now see a greater than even chance of a rate increase at the central bank's mid-September policy gathering.

While the ultimate decision will hinge heavily on upcoming employment figures and subsequent inflation data, the market response has already been notable, with yields on policy-sensitive two-year U.S. Treasuries posting their largest single-day jump in over two months. Warsh's recent public appearances have repeatedly rattled markets, yet despite his consistent messaging on price stability, a cohort of investors remains unconvinced that action will follow words.

These market participants are bracing for the possibility that Warsh could again hold rates steady, as he did in June and July, which would intensify concerns about the central bank's credibility. Such worries have already contributed to pushing long-dated Treasury yields to their highest levels in roughly two decades. TD Securities noted last Friday that its base case remains one of no change to policy rates at the upcoming meeting.

For Christophe Boucher of ABN AMRO, the chair's rhetoric has yet to provide sufficient conviction that policymakers will ultimately pull the trigger. He is currently avoiding longer-dated bonds, an asset class that would be particularly vulnerable if market anxiety re-emerges over the Fed's ability to contain persistent price pressures. Boucher, who serves as chief investment officer, cautioned that should Warsh fail to deliver a September hike while inflation remains sticky, questions about the institution's credibility could very well resurface.