A hawkish Jackson Hole speech moved rate expectations on its own. A follow-up forecast from Deutsche Bank calling for two hikes this year is what's keeping the move intact days later.
Kevin Warsh's hawkish remarks at last week's Jackson Hole gathering set off an immediate repricing of Federal Reserve rate-hike expectations, and that repricing has held up, and arguably strengthened, in the days since. Market-implied odds of a quarter-point hike at the Fed's September meeting have climbed from roughly 40 percent before the speech into a range spanning the high 50s to 60 percent, depending on the pricing source.
What has kept that move from fading, the way many post-speech reactions do within days, is that it is no longer resting purely on Warsh's own words. Deutsche Bank is now on record forecasting two Fed rate hikes before year-end, in September and December, for a cumulative 50 basis points of tightening. That is a specific, attachable institutional call, not a restatement of hawkish tone, and it gives the market's repriced odds a harder floor to stand on.
The knock-on effects are visible elsewhere in markets. The two-year Treasury yield has moved toward its highest levels in roughly two years, a direct read on near-term rate expectations. Equity markets in Asia, which trade first after U.S. rate-expectation shifts land, showed a clear reaction, with Japan's benchmark falling more than two percent, led by chip stocks that are especially sensitive to the cost of capital. Gold has also come under pressure, a related but distinct story covered separately, as higher expected rates raise the opportunity cost of holding a non-yielding asset.
What would change this picture is either a Fed communication that pushes back on the hawkish read, which has not yet happened, or incoming data, most immediately this week's employment and manufacturing readings, that undercuts the case for tightening. Until one of those shows up, the market appears to be treating Warsh's speech and Deutsche Bank's follow-through as a combined, mutually reinforcing signal rather than two separate, weaker data points.