September FOMC: Jackson Hole Flipped FedWatch, but the Dot Plot Is the Real Story
The market’s view of the September FOMC has reversed twice inside two weeks. When the August payrolls report landed soft in early August, traders shifted toward a hold and marked September hike odds down into the low 30s. Then Fed Chair Kevin Warsh delivered a hawkish speech at Jackson Hole on August 28, and CME FedWatch’s probability of a 25bp September hike snapped from around 35% to roughly 55% in a day. Reuters’ own tally moved from 35% to 60%.
Different venues still read the same numbers differently. The prediction market Kalshi prices a September hike at 48%; Polymarket puts the odds of a hike at some point this year at 69%. When the probability clusters around one in two, the decision is close enough to be flipped by a single data point.
What Jackson Hole reversed
Warsh used the speech to state plainly that the Fed’s overriding task right now is inflation. He cited the government’s July PCE reading — up 3.7% from a year earlier — and called the 2% target firm and fixed. He pushed back on the view that a modestly softer run of recent CPI and PCE prints signals a structural break in the trend. The labor market he described as stable and consistent with full employment.
Unlike his predecessors, Warsh rarely offers forward guidance, so the speech itself functioned as guidance. A futures-implied probability — real money, priced continuously — moving more than 20 points in half a day is the market rewriting the Fed’s reaction function, from early cuts toward room for further tightening.
The 9-3 vote in July set this up
The roots of the swing are in the July 29 FOMC meeting. The Fed held its policy rate at 3.50-3.75%, but the vote split 9-3. Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas each dissented, arguing for an immediate 25bp hike. No one on the Board of Governors dissented.
Three regional presidents breaking the same way is unusual. With inflation above the 2% target for more than five years, the better read is not a committee coming apart but the hawks reaching the end of their patience. July was the trailer for the Jackson Hole speech.
September 16-17: the dot plot is the real variable
For the September meeting, the hike-or-hold question matters less than the dot plot. The meeting brings a fresh Summary of Economic Projections alongside the rate dots, with Fed governors and all 12 regional presidents each submitting rate projections for this year, the next three years and the longer-run level.
Three things to watch: whether the median for end-2026 moves up by 25bp, whether the long-run neutral rate estimate rises from here, and how many dissents line up behind a hike. My own lean is toward a hold paired with an upgraded dot plot rather than an actual 25bp move. Once Warsh has labeled the labor market as full employment, inflation is the only variable that matters — and lifting the dots without spending the rate cut still tightens financial conditions.
That read, of course, breaks easily against the inflation data.
Two scenarios, decided by August CPI and payrolls
The final path comes down to the August CPI print at 8:30 a.m. Eastern on September 11 and the August jobs report in early September. Warsh’s Fed has repeated that it will move with the data.
If core CPI runs above 0.3% month over month and services inflation refuses to cool, the Fed can hike to 3.75-4.00% in September and use the dots to keep the door open to more. If inflation cools faster than expected, the rate stays at 3.50-3.75% — but that is a hawkish hold, not an easing, with higher dots and firm statement language used to shut down early-cut expectations. Either way, the return to low rates the market had penciled in gets pushed further out.
A calculation retail investors can run
The hike-or-no-hike binary doesn’t help much. The roughly 55% that FedWatch shows is already largely in the 2-year Treasury yield. What matters is how far and which way the yield curve gets redrawn after the decision.
Here is how to check it in numbers. Take the end-2026 median from the September 17 dots and subtract the current effective rate — 3.625%, the midpoint of 3.50-3.75%. A 25bp gap is what the market already carries; 50bp or more and the math diverges between short-dated rate products and longer-duration bonds. If the long-run neutral estimate also moves up, the floor under that whole calculation rises. There is no cost to waiting for the September 11 inflation print and the September 17 dots before acting.
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Disclaimer — This article is for general informational purposes only and is not a recommendation to invest in any specific security or product. Investment decisions and their consequences are solely the reader's responsibility.
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