The markets are fearful, I'm not in the short term

My prediction yesterday was correct, Warsh came off hawkish in his speech. My interpretation is this is Warsh just being Warsh again. The market’s have gotten more scared of a hike, but I think in the short term (September), this is unfounded. With fairly benign inflation, I don’t think we will see a rate hike. However I do think a rate hike is inevitable because I believe we’re in a stagflationary scenario. I view the september, october, and december markets for a rate hike as selling insurance to people who are scared right now. I do think the hike will happen, but the premium you get by betting against it looks attractive to me in the short term. I’m not making a judgement on october or december right now, but I would think the market’s reaction to the speech is going in the wrong direction for September. I leave you with the 2 excerpts from my agent’s research report that I think are most relevant.

• Fed Chair Kevin Warsh delivered his first Jackson Hole keynote address (10am EDT, KC Fed, Grand Teton). His prepared remarks said the US economy is at “full employment” but inflation figures “are more concerning.” He did not signal where rates are heading.
• Warsh defended his communication overhaul: “A quieter Fed, more purposeful in its communications, is better able to meet its objectives.”
• On his refusal to define a “reaction function” or forward guidance: “I wish our understanding of the economy were so precise as to provide a mechanical, tried-and-true answer… But our knowledge just doesn’t extend that far—at least not yet.”
• Market reaction (hawkish repricing): Kalshi September hike odds jumped to ~44-45% (H25 bid 44c) from ~36% pre-speech; September hold fell to ~53-55%. FEDHIKE by Dec 31 2026 rose to 68-72% (from 60-61%); by Jun 2027 75-76%; by Dec 2027 81-83%. October H25 ~25%; December H25 ~35-37%.

The dominant inconsistency is a hawkish Fed repricing (Sept hike ~42%, ~70% by year-end, dot ~3.8%) that stands at odds with the market’s own benign-core and flat-labor instruments (core CPI ~0.2%, core PCE ~0.2%, U3 4.1%). The market has moved policy instruments hawkish on Warsh’s Jackson Hole tone without correspondingly moving its inflation or labor instruments hawkish. Either the policy path is overpriced (likely, given today’s abrupt hawkish repricing from an already-stretched base) or the core-inflation/labor instruments are underpricing re-acceleration. The 42% Sept figure sits at the high end of the plausible range implied by the market’s own cross-series, and there is a ~10pp internal gap between the decision market and the combo-derived number.