US Stocks Drift as Expectations Rise for Fed Rate Hikes
US stocks are experiencing a mixed reaction on Friday as expectations rise for the Federal Reserve to hike interest rates to control inflation. The S&P 500 was virtually unchanged after flipping between modest gains and losses throughout the morning.
The Dow Jones Industrial Average rose 74 points, or 0.1%, at noon Eastern time, while the Nasdaq composite dropped 0.5%. The bond market had a more significant reaction to Kevin Warsh's speech as chairman of the Fed at an annual economic symposium in Jackson Hole, Wyoming.
Warsh emphasized that short-term interest rates are the predominant tool for the Fed to control inflation and maintain a strong job market. He 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 to tame down the economy and inflation.
The yield on the two-year Treasury jumped to 4.32% from 4.22% just before Warsh's speech, indicating a nearly 60% probability of a Fed rate hike next month, up from 35% the previous day.