Warsh's Words Spark 59.7% Chance of September Rate Hike

Kevin Warsh, the new Fed Chair, delivered his first symposium keynote speech on Friday. He expressed doubts about the latest inflation prints and signaled that policymakers must be confident that inflation is returning to 2% 'clearly and at sufficient speed.' If not, he warned, 'we have work to do.'

The rates market took Warsh's words as forward guidance, and the odds of a quarter-point hike at the September 15-16 meeting jumped to 59.7%, up from 35.4% on Thursday.

Traders believe that such a hike will successfully keep long-term inflation in check, which is why the two-year Treasury yield rose 9 basis points to 1.032%, a one-month high. The real signal, however, lies in the yield curve: while the two-year spiked, the 30-year yield held flat at 5.19% and the 10-year rose less than 4 basis points to 4.71%. This bear flattener suggests traders are pricing in short-term Fed tightening.

Gold and Bitcoin took a hit as a result. Spot gold fell 1.7% to $4,526 an ounce, while SPDR Gold Shares (NYSE:GLD) dropped 1.8%. VanEck Gold Miners ETF (NYSE:GDX) fell 2.7%, and Bitcoin (BTC) slid to about $78,100 after clearing $80,000 earlier in the week.