Fed Hike Odds Rise Amid Warsh's Hawkish Comments, Yields Spike

The US bond market reacted strongly to Federal Reserve Chairman Kevin Warsh's speech at an annual economic symposium in Jackson Hole, Wyoming. The yield on the two-year Treasury jumped to 4.35% from 4.22%, indicating investors' growing confidence that the Fed will hike interest rates soon to combat high inflation.

The S&P 500 fell 0.3%, while the Dow Jones Industrial Average was down 30 points, or 0.1%. The Nasdaq composite declined by 0.6%. Economists at Bank of America led by Aditya Bhave noted that investors are 'pricing a more credible Fed.'

Warsh emphasized that short-term interest rates are the predominant tool for the Fed to control inflation and maintain a strong job market. He also stated that he would be hard pressed to describe broad financial conditions as restrictive, implying that short-term interest rates may not be high enough.