Only one week earlier, the implied probability of a September hike was below 40%. That means the market-implied odds have increased by at least 26 percentage points in seven days, or more than 65% relative to the previous probability.
The move leaves roughly a 2-to-1 market bet in favor of a September hike. The repricing is significant because it changes the question facing markets. Instead of debating how long the Fed will hold rates steady, traders are increasingly positioning for another step higher in borrowing costs.
Jackson Hole Triggered a 26-Point Repricing
The change around Jackson Hole was unusually large for expectations surrounding a single Fed meeting.
| September Fed pricing | Implied probability |
| One week ago | <40% |
| Latest | >66% |
| Change | >26 percentage points |
| Relative increase | >65% |
| Implied odds | ~2:1 in favor of hike |
| Expected move | +25 bp |
At a 66% probability, the market-implied contribution of a 25-basis-point hike is approximately 16.5 basis points.
At a 40% probability, it was only 10 basis points. In other words, roughly 6.5 basis points of additional expected September tightening have entered market pricing in just one week. That is the immediate numerical impact of the shift.
A 25-Basis-Point Move Is No Longer a Tail Risk
At less than 40%, a September increase was still the minority scenario. Above 66%, the positions have reversed. For every three probability-weighted outcomes, roughly two now point toward a hike and only one toward no increase.
The remaining gap to full pricing is also shrinking rapidly. From 40%, the market needed another 60 percentage points to reach certainty. At 66%, only 34 points remain. More than 43% of that probability gap has disappeared in a week.
The significance is not that traders have suddenly become certain about September. They have not. It is that a rate hike has moved from an alternative scenario to the market's base case.
The Market Is Pricing More Than the September Meeting
The arithmetic becomes more important if the September move is not isolated. One 25-basis-point hike raises the policy rate by 0.25 percentage point. Two hikes would mean 50 basis points of additional tightening. Three would mean 75 basis points.
| Additional hikes | Cumulative tightening |
| 1 | +25 bp |
| 2 | +50 bp |
| 3 | +75 bp |
| 4 | +100 bp |
This is the risk that markets now have to consider following Warsh’s Jackson Hole remarks. A September increase alone is relatively easy to absorb. A September hike followed by another move would imply that the Fed has concluded existing monetary restraint is insufficient. That would amount to a materially different policy regime.
Why 66% Matters for Treasury Pricing
Short-term Treasury yields are highly sensitive to the expected path of the federal funds rate. The probability shift alone illustrates the change.
Using only the two September outcomes, a 25-basis-point hike or no hike expected incremental tightening has moved from less than 10 basis points a week ago to more than 16.5 basis points today.
That is an increase of at least 6.5 basis points in the probability-weighted expected policy move.
The calculation is straightforward:
- One week ago: 40% × 25 bp = 10 bp
- Now: 66% × 25 bp = 16.5 bp
The actual repricing is slightly larger because the earlier probability was below 40% and the latest reading is above 66%.
This helps explain why even a change in probabilities, before any actual Fed decision, can immediately affect Treasury yields and broader financial conditions.
Markets Have Less Than Three Weeks to Price the Decision
The September FOMC decision is scheduled for later this month, leaving investors with a relatively short window in which incoming economic data can move the remaining 34% of uncertainty.
That makes each major inflation and labor-market release more consequential. If the probability rises from 66% to 80%, the probability-weighted September move would increase from 16.5 bp to 20 bp. At 90%, it would reach 22.5 bp.
At 100%, the full 25 bp would be priced.
| Hike probability | Probability-weighted move |
| 40% | 10.0 bp |
| 50% | 12.5 bp |
| 66% | 16.5 bp |
| 75% | 18.75 bp |
| 80% | 20.0 bp |
| 90% | 22.5 bp |
| 100% | 25.0 bp |
This provides a simple framework for interpreting the next round of economic data. Stronger inflation or labor-market numbers could push pricing toward the 80–90% range. Softer data could rapidly reverse the post-Jackson Hole move.
Warsh Has Changed the September Starting Point
The most important result of Jackson Hole is therefore measurable.
In approximately one week:
- September hike probability moved from below 40% to above 66%.
- The increase exceeded 26 percentage points.
- Relative hike probability increased by more than 65%.
- The probability-weighted expected September move increased from less than 10 bp to more than 16.5 bp.
- A 25-basis-point increase moved from a minority scenario to roughly a 2-to-1 favorite.
No policy rate has changed yet. But the market's expected September rate has. That distinction is important because financial conditions respond to expectations before the Federal Reserve acts. Treasury yields, the dollar, credit pricing and equity discount rates can all adjust as traders incorporate a higher expected policy path.
The next stage of the trade is therefore straightforward: whether incoming data push the remaining 34% uncertainty toward a fully priced 25-basis-point hike — or unwind the more than 26-percentage-point shift triggered by Jackson Hole.
