Warsh's Rate-Hike Warning Boosts Expectations for Higher Interest Rates

U.S. stocks ended lower on Friday but still managed to post weekly gains as investors weighed Kevin Warsh's caution on inflation and the possibility of a September rate hike.

Warsh, speaking at the Federal Reserve's annual Jackson Hole symposium, indicated that recent inflation readings have not provided enough evidence of a sustained slowdown in underlying price pressures. As quoted on CNBC, he said 'we should not indulge a regime in which market participants are looking primarily to the Fed for their next trade.'

Traders responded by sharply increasing expectations for a September rate hike, with Fed funds futures showing a 57% probability of a hike, up from 39.9% the previous week.

In contrast to longer-dated yields, short-term Treasury yields initially moved higher following Warsh's speech, reflecting growing expectations for tighter monetary policy.