BARCLAYS expects the U.S. Federal Reserve to raise interest rates by 25 basis points in September and again in December after Chair Kevin Warsh's latest remarks signalled a more hawkish stance, the brokerage said on Friday.
Warsh told the Federal Reserve's Jackson Hole symposium on Friday that policymakers would "have work to do" if they lacked confidence inflation was returning to the central bank's 2% target, his clearest signal yet that further rate hikes may be needed.
He said inflation was too high, financial conditions were not restrictive and the labour market was consistent with full employment, signalling that price stability remained the Fed's priority.
Barclays said Warsh's speech was "notably hawkish" and offered an implicit case for further tightening despite his continued opposition to providing explicit forward guidance.
The brokerage added that although it still expects monthly inflation readings to come in "much softer" than the longer-horizon measures emphasized by Warsh, "unfavorable base effects will work against progress by those metrics through year-end."
Previously the Wall Street brokerage had expected the Fed to keep rates unchanged through the remainder of the year.
Markets are pricing in a 60.4% chance of a rate hike in September, according to the CME Group's FedWatch tool.
Interest rate futures show investors have increased bets on a September rate hike following Warsh's remarks, with attention now turning to the Fed's policy decision on September 16 for further clues on the rate path. - Reuters
