Federal Reserve chairman Kevin Warsh's hawkish Jackson Hole remarks pushed September rate-hike odds to roughly 58% from 35% a day earlier, lifting short-term Treasury yields and pulling the Dow, S&P 500 and Nasdaq lower. The reaction was milder than after Warsh's June and July comments, with the S&P 500 still about 1% below record highs heading into the Fed's September 16 decision.
Kevin Warsh unsettled markets on Friday with unexpectedly hawkish comments on inflation at the Kansas City Fed's Jackson Hole symposium, according to the Wall Street Journal. Traders reacted fast: interest-rate futures moved to price a roughly 58% chance of a September rate increase, up sharply from 35% the previous day, based on CME Group data.
Stocks slip, yields diverge
The Dow slipped under 0.1%, the S&P 500 fell 0.2% and the Nasdaq dropped 0.5%, a milder reaction than after Warsh's June and July Fed meeting comments.
Short-term Treasury yields rose more than longer-dated ones, reflecting the direct link between near-term Fed expectations and the front end of the curve. The 30-year Treasury yield eased to 5.207% following the Treasury's recent move to double long-bond buybacks. Meanwhile the 10-year yield rose to 4.721%.
A split verdict on Warsh
Friday's speech split the difference between Warsh's two previous high-profile appearances as chairman. His June press conference surprised markets with similar inflation concern, but his July comments had the opposite effect, prompting doubts about whether he would follow through on hawkish rhetoric with actual rate-hike policy. The remarks eased concern that Warsh would avoid hikes under political pressure, but raised worry that the Fed is now boxed into raising rates regardless of incoming data.
Equities shrug, for now
Equity investors have largely shrugged off the bond market turbulence, focused instead on the tail end of earnings season and a blowout Nvidia report that eased concerns over AI chip demand. Still, small caps and industrial stocks underperformed, and the S&P 500 remains about 1% below record highs heading into the Fed's September 16 decision. Trading volumes are near their lowest levels of the year, and September has historically been a rocky month for stocks.
Source: InvestingLive
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