Warsh's Words Spark Doubts on Rate Hike Bets

Bond investors are skeptical about the likelihood of a Federal Reserve interest rate hike in September after Fed Chairman Kevin Warsh reiterated his commitment to bringing down inflation. While swaps traders see a rate hike as more likely than not, some investors are bracing for the risk that Warsh keeps rates steady again.

Investors have struggled to adapt to Warsh's communications style, which provides less forward guidance on interest-rate policy than his predecessors. This uncertainty has driven long-maturity yields to their highest levels in about two decades.

Some market participants are questioning the Fed's credibility and whether it will follow through with a rate hike if inflation remains sticky. ABN AMRO's Christophe Boucher, chief investment officer, said 'The reaction function is still unclear.'