US Stocks Plummet as Expectations Grow for Interest Rate Hike

US stocks traded lower on Friday as expectations grew that the Federal Reserve will raise interest rates to combat inflation.

The S&P 500 fell by 0.3% after fluctuating between modest gains and losses throughout the morning, while the Dow Jones Industrial Average dropped 47 points, or 0.1%, by 2:28 p.m. Eastern time.

Bond market reactions were more pronounced following Kevin Warsh's first address as Fed chairman at an annual economic symposium in Jackson Hole, Wyoming.

Warsh emphasized the importance of short-term interest rates, stating they are 'the predominant tool' for the Fed to achieve its goals of low inflation and a strong job market. However, he also said he prefers to give markets fewer clues about rate hikes.

The two-year Treasury yield jumped to 4.35% from 4.22% before Warsh's speech, while traders now bet on a nearly 60% probability of a federal funds rate hike as soon as next month.