Markets are set for a much more hawkish Warsh Fed than expected

Federal Reserve Chairman Kevin Warsh's tough talk on inflation Wednesday reverberated through financial markets, with traders expecting that the central bank could start jacking up interest rates in just a few months. Tapped to serve by President Donald Trump , who has repeatedly demanded lower rates, Warsh during a news conference instead focused on the battle against inflation, which has run above the Fed's official 2% target for five years. "Persistently high prices are a burden for the American people, but the recent past need not be prologue," he said. "I am pleased to report that members of the [Federal Open Market Committee] are unambiguous and unanimous. This committee will deliver price stability." Markets immediately took notice as the new central bank leader sought to establish his inflation-fighting credentials. The 2-year Treasury yield , seen as a market reflection of Fed moves, soared as Warsh spoke. At the same time, futures market traders began placing bets on when the next rate hike would come. The probability for an increase at the July 28-29 meeting quickly climbed to about 1-in-3. Odds for a September hike spiked to 67% around midday Thursday, according to the CME Group's FedWatch . Stock Chart Icon Stock chart icon 2-year yield Dispelling the Warsh narrative Moreover, traders priced in largely tighter Fed policy well into the future too. The odds of a second hike by September 2027 rose above 45%. …