Following Kevin Warsh’s ostensibly hawkish address in Jackson Hole, I wrote that if the market-implied odds of a rate hike from the Fed were “meaningfully above 50% on the eve of September’s FOMC gathering, Warsh will have a choice to make: Hike ahead of the mid-terms or face a market revolt.”

As Bloomberg Intelligence’s Ira Jersey put it late last month, Warsh “back[ed] himself into a corner” with his Wyoming speech. No, he didn’t precommit to a hike in the event the data argued the hawkish case, precommitments being akin to the forward guidance Warsh swore off. But he did double down on the price stability message from his debut press conference in June.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh told the crowd gathered in the Grand Tetons last month. “Otherwise, we have work to do. That’s our job, our mandate and our charge to keep.”

Price data received since Warsh uttered those words doesn’t “clearly” suggest inflation’s moving to the Fed’s objective, and certainly not “at sufficient speed.” Core CPI ran 0.3% in August, according to September 11’s release from the BLS, more than double the pace consistent with a 2% annual rate, and so-called “supercore” inflation (core services price growth excluding the housing metrics) was 0.5%, the warmest since January.

A day earlier, the BLS’s PPI release tipped some upside versus consensus for the Fed’s preferred measure of price growth, PCE inflation, due later this month. The message from the report on factory gate prices was amplified by Brent, which stormed sharply higher, nearly reaching $110, as the Houthis seized key territory in Yemen.

All of that on the heels of a jobs report which suggested the US labor market’s suddenly in fine fettle again.

The market-implied odds of a hike from the Fed this week are roughly 90%. Two-year US yields rose more than 25bps last week, the most since the volatility around “Liberation Day.”

As the figure above shows, twos are now 100bps — a full percentage point — wide to EFFR.

Warsh must hike. If he doesn’t, he’ll raise fresh, and this time urgent, questions about the Fed’s credibility and independence. In terms of price action, a hold would trigger a dramatic bullish reversal at the front-end and, quite possibly, a runaway bear move at the long-end, with the latter being at odds with Scott Bessent’s efforts to arrest the increase in long-term US yields.

The already challenging optics of a hold on the heels of a barnburner jobs report, warm inflation and a return to triple-digit crude, would be made worse by what’d almost surely be the same hawkish dissents Warsh faced in July. And he’d be asked in the press conference if his decision not to support a hike was in any way related to public calls for rate cuts by both Donald Trump and JD Vance.

So, again, Warsh better hike. Assuming he does, questions will turn to how many hikes the Fed intends to deliver in the months (or quarters) ahead. On that point, the 2026 dot in the SEP refresh will be watched closely.

The figure above, from BMO’s Ian Lyngen and Vail Hartman, is worth a look. It shows market pricing for the terminal rate — the Fed’s “destination,” if you like.

“As it currently stands, futures [are] pricing in a terminal policy rate of 4.54%, an impressive increase from before Jackson Hole,” Lyngen and Hartman remarked. “In other words, the market is expecting roughly 90bps of policy tightening, or three- to four quarter-point rate hikes, over the next several quarters.”

They went on to say that if past is precedent, it’s very unlikely that a hike this month would be a “one and done” affair. “Historically, the Fed has rarely been content with a single 25bps move in either direction [so] we’re operating under the assumption that, at a minimum, the Committee will ultimately deliver 75bps of hikes in the form of three quarter-point moves spread out over a series of meetings.”

I understand the logic — and the Fed could always skip October out of “respect” for the mid-terms — but I frankly don’t see how a series of hikes is a politically tenable proposition for Warsh. If your answer is, “Well, the Fed’s not beholden to politics,” I’d gently suggest you’re begging the question.