Fed Rate Hike Odds Jump After Warsh Speech, Brazil’s Real Slides
Markets · FED
Key Facts
- —Chair Kevin Warsh took office as Federal Reserve chair on 22 May 2026.
- —Speech Warsh delivered his address, titled In Our Time, at Jackson Hole on 28 August.
- —Pricing Fed rate hike odds for September reached about 59 percent from 35 percent.
- —Real The dollar closed at R$5.1965 on 28 August, with PTAX venda at R$5.2005.
- —Long rates Brazil’s January 2031 rate future ended at 14.40 percent, up from 14.36 percent.
Kevin Warsh’s first Jackson Hole address reset the price of money for Latin America
Kevin Warsh used his first Jackson Hole speech as Federal Reserve chair to put inflation ahead of everything else. Fed rate hike odds for September jumped within hours, and Latin American currencies gave ground.
What the new central bank chief said in Wyoming
Kevin Warsh took office as chair of the Federal Reserve, the United States central bank, on 22 May 2026. He gave his first Jackson Hole address on 28 August, under the title In Our Time.
The setting is the annual economic policy symposium hosted by the Federal Reserve Bank of Kansas City. This year the organisers built the programme around financial innovation and its implications for payments and policy.
Warsh called the 2 percent goal, measured by the personal consumption expenditures price index, a firm and fixed target. He said the 12-month change in that index stands at 3.7 percent, with the six-month change at 4.1 percent.
The predominant focus right now should be on prices, he told the audience. He added that the central bank has work to do unless underlying inflation moves to target at sufficient speed.
Markets swung to pricing a September increase
The Federal Open Market Committee, the rate-setting panel known as the FOMC, meets next on 15 and 16 September. Fed rate hike odds for that meeting climbed sharply once the text was published.
CME Group, parent of the Chicago Mercantile Exchange, runs the FedWatch tool that reads federal funds futures. Fed rate hike odds there rose from about 35 percent on Thursday to roughly 59 percent late on Friday.
The reading moved through the day, with the tool near 55.7 percent on Friday morning. Providers published slightly different figures, which is normal for a measure that updates all session.
The target range has stood at 3.50 to 3.75 percent since the meeting held on 29 July. A quarter-point increase in September would be the first rise under the new chair.
Société Générale changed its call the same day. Jan Groen, the bank’s chief United States economist, now forecasts quarter-point increases in September, December and March 2027.
Gold, shares and Treasury yields moved fast
Spot gold fell 3.2 percent on 28 August to US$4,456.20 an ounce. Gold futures dropped 3.4 percent to US$4,506.66, and the metal lost 3.2 percent across the week.
Short-dated government bond yields led the move in Washington. The two-year yield rose 12 basis points to 4.352 percent, while the 10-year added 5.3 basis points to 4.725 percent.
Wall Street was mixed rather than uniformly weaker, which matters for anyone reading the headlines. The S&P 500 slipped 0.12 percent to 7,722.06 and the Nasdaq Composite fell 0.34 percent to 26,450.59.
The Dow Jones Industrial Average edged up 0.05 percent to 53,598.14. The S&P 500 still finished the week higher, so the selling was narrow rather than broad.
The real weakened as Brazil absorbed the shock
The dollar bought R$5.1965 in Brazil at Friday’s close, up 0.67 percent on the day. It touched R$5.2308 during the session and gained about 1 percent across the week.
The widely quoted R$5.19 level is the spot close, not the official reference rate. The Banco Central do Brasil selling reference rate, known as PTAX venda, was R$5.2005 on 28 August.
Brazilian shares held up better than the currency did. The Ibovespa index rose 0.30 percent to 175,664.62 points and closed the week 3.06 percent higher.
Domestic data pulled in the other direction on the same morning. Formal hiring came in at 58,568 net jobs, far below the roughly 115,000 the market had expected.
Long rates rose against a cutting cycle
Longer Brazilian interest rate futures rose after the speech landed. The January 2029 contract closed at 14.12 percent, up from 14.066 percent the day before.
The January 2030 contract moved to 14.32 percent from 14.26 percent. The January 2031 contract ended at 14.40 percent, against 14.36 percent previously.
That direction matters because Brazil is easing, not tightening. The Comitê de Política Monetária, the rate-setting committee known as Copom, has cut the Selic policy rate four times in 2026.
Those cuts took the Selic from 15 percent to 14 percent, the last of them on 6 August. Copom next meets on 15 and 16 September, the same two days as the FOMC.
Rising Fed rate hike odds narrow the yield gap that funds carry trades into the real. A narrower gap makes local bonds less rewarding for the investors who buy them.
The peso and the Andean currencies felt the pull
The Mexican peso weakened to 17.03 per dollar on 28 August, roughly six centavos softer. Banco de México has held its target rate at 6.50 percent, most recently in a unanimous vote on 6 August.
The Colombian peso was the weakest performer in the region that day, down 1.57 percent. The official market rate, known as the TRM, moved from 3,144.28 pesos to 3,202.79 for the following days.
Banco de la República held its policy rate at 12 percent on 31 July. Three of the seven board members wanted a half-point increase, with June inflation running at 6.1 percent.
Chile’s central bank left its monetary policy rate at 4.5 percent on 28 July, by unanimous vote. Its board meets again on 8 September, a week before the FOMC decides.
What the region’s rate setters weigh next
Higher Fed rate hike odds compress the yield gap that draws foreign money into the region. That gap is what pays investors to hold local bonds instead of United States government paper.
Yihao Lin, an economist at Genial Investimentos, said on 28 August that American increases would leave less room for cuts in Brazil. He warned that further currency weakness would feed back into Brazilian inflation.
Valeria Álvarez Morales, strategy lead at Itaú Colombia Comisionista de Bolsa, called a much more aggressive Federal Reserve the main risk. Her colleague Carolina Monzón, head of economic research, said in comments published on 1 August that rates would rise.
Itaú’s published projections put the dollar at R$5.30 and 18.4 Mexican pesos by the end of 2026. Those numbers assume a slow grind rather than a rout, provided Fed rate hike odds do not run away.
Frequently Asked Questions
How high did the market push the odds of a September increase?
The FedWatch tool run by CME Group showed Fed rate hike odds near 59 percent after the speech. They had sat close to 35 percent the previous day.
How did the Brazilian real react to the speech?
The dollar closed at R$5.1965 in Brazil on 28 August, up 0.67 percent on the day. The official PTAX venda reference rate for that date was R$5.2005.
When do the region’s central banks meet next?
Chile’s board meets on 8 September and Brazil’s Copom on 15 and 16 September. Colombia’s board is also scheduled to meet in September.
Connected Coverage
Sources
- www.federalreserve.gov
- www.federalreserve.gov
- www.federalreserve.gov
- www.bondbuyer.com
- www.benzinga.com
- www.housingwire.com
- ca.investing.com
- finance.yahoo.com
- olinda.bcb.gov.br
- br.advfn.com
- br.advfn.com
- www.dgabc.com.br
- api.bcb.gov.br
- www.metropoles.com
- www.bloomberglinea.com
- www.elfinanciero.com.mx
- www.banxico.org.mx
- www.datos.gov.co
- www.eluniversal.com.co
- www.bcentral.cl
- www.bloomberglinea.com
- www.infomoney.com.br
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