Fed Rate Hike Odds Soar as Stocks Rise on Inflation Fears

US stocks rose on Friday as investors grew more confident that the Federal Reserve will hike interest rates to combat high inflation. The S&P 500 added 0.4% and pulled closer to its all-time high, while the Dow Jones Industrial Average was up 208 points, or 0.4%, at 11:30 a.m. Eastern time.

The bond market reacted strongly to comments from Federal Reserve Chairman Kevin Warsh, who spoke at an economic symposium in Jackson Hole, Wyoming. The yield on the two-year Treasury jumped to 4.32% from 4.22% just before his speech, while traders now see a nearly 58% probability of a rate hike next month, up from 35% the day before.

Warsh emphasized that short-term interest rates are the Fed's predominant tool for controlling inflation and maintaining a strong job market. However, some analysts warn that this approach could lead to conflicting signals with the Treasury Department's interventions in the bond market.