Bond Market Rallies as Fed Chief Signals Rate Hikes Ahead
The bond market is bracing for an interest rate hike as investors bet on a nearly 58% probability of the Federal Reserve increasing rates by next month, according to data from CME Group.
Federal Reserve Chairman Kevin Warsh emphasized in his first speech at the annual economic symposium in Jackson Hole, Wyoming that short-term interest rates are the predominant tool for the Fed to keep inflation low and the job market strong.
Warsh's comments sent shockwaves through the bond market, with the yield on two-year Treasuries jumping 1.3% to 4.35%, a significant move indicating investors have upped their forecasts for rate hikes.
The S&P 500 dipped 0.2%, but overall stock performance was modest as investors seem to be pricing in a more credible Fed, according to economists at Bank of America.