US Stocks Drift as Market Anticipates Fed Rate Hike
US stocks fluctuated on Friday as investors waited for the Federal Reserve's next move to combat inflation. The S&P 500 fell 0.3% after trading in modest gains and losses throughout the day, while the Dow Jones Industrial Average dropped 47 points, or 0.1%, and the Nasdaq composite slid 0.5%. Bond markets reacted more strongly to Fed Chairman Kevin Warsh's speech at the Jackson Hole Economic Policy Symposium in Wyoming.
Warsh emphasized that short-term interest rates are the primary tool for the Fed to control inflation and keep the job market strong. He also stated that 'I would be hard pressed to describe broad financial conditions as restrictive,' implying that short-term interest rates may not be high enough to curb the economy and inflation.
Market expectations suggest a nearly 60% probability of the Fed hiking its federal funds rate as soon as next month, up from 35% just before Warsh's speech. The two-year Treasury yield jumped to 4.35% from 4.22%, reflecting increased expectations for a rate hike.