the Federal Reserve is expected to raise interest rates twice before the end of the year, following a recent speech by Governor Kevin Warsh and impressive employment data.

In a statement, analysts including Jonathan Pingle and Abigail Watt argued that points raised in Warsh’s speech at the Fed’s Jackson Hole event signaled support for rate hikes.

Warsh emphasized that policymakers "must be confident" that core inflation is moving toward the Fed’s 2% target "clearly and with sufficient speed," adding that otherwise, "we have work to do." He also highlighted that interest rates remain the primary tool of monetary policy.

"Warsh has thrown down the gauntlet. With his credibility now on the line, we expect he will have no choice but to back up his monetary policy stance with concrete action," the UBS analysts stated.

However, they noted that their current forecast of two upcoming quarter-point rate hikes—one at the Fed’s September meeting and another in December—is made with "low conviction" and depends on incoming data. For instance, an unpleasant surprise in this week's August Consumer Price Index (CPI) report could "invalidate this assessment," they added.

Markets are currently pricing in a roughly 60% probability of a 25-basis-point rate hike this month. Data from last week, showing that the U.S. economy added significantly more jobs than expected in August, helped reinforce these expectations. While higher borrowing costs could slow job growth, a resilient labor market may strengthen the case for a rate hike.

"We view the September decision as a difficult call." "This is partly because we expect Warsh to take into account the principles he has outlined, alongside market prices, his assessment of how rates have shifted between meetings, and the views and arguments of his colleagues," UBS analysts stated.