Warsh Speech Boosts Rate Hike Bets to 58% as Fed Fights Inflation

The U.S. Federal Reserve may hike interest rates soon to get inflation under control, according to investors who are now betting on a nearly 58% probability of this happening as early as next month.

This move comes after Chairman Kevin Warsh's speech at the annual economic symposium in Jackson Hole, Wyoming, where he reiterated that short-term interest rates are the predominant tool for the Fed to keep inflation low and the job market strong.

The yield on the two-year Treasury jumped to 4.35% from 4.22% just before Warsh's speech, indicating that traders have upped their forecasts of a rate hike. The 10-year Treasury yield also climbed to 4.72% from 4.67%, and the 30-year Treasury yield got to 5.21% from 5.19%.

The positive market reaction highlights that investors place a premium on policy clarity, even when that clarity carries a message implying higher interest rates. The S&P 500 fell 0.2% after flipping between modest gains and losses through the morning, while the Dow Jones Industrial Average dipped 9 points, or less than 0.1%, and the Nasdaq composite slipped 0.5%.