U.S. stock-index futures moved lower Sunday as investors weighed the growing probability of a fresh interest-rate increase from the Federal Reserve.
Markets are now pricing in a 58% probability of a 25-basis-point rate hike at the September meeting, up sharply from 36% before Fed Chair Kevin Warsh’s speech Friday.
Warsh told attendees at the annual Jackson Hole Symposium that the Federal Reserve will “have work to do” if policymakers are not confident that underlying inflation is returning to its 2% target.
His comments were widely interpreted as mildly hawkish, marking the closest he has come to signaling that additional rate hikes may be necessary to bring price pressures under control.
U.S. stocks turned lower Friday as investors digested Warsh’s first keynote address at Jackson Hole, with the session erasing earlier gains across major indexes.
The Dow Jones Industrial Average finished the day roughly flat, while the S&P 500 slid nearly 0.3% and the Nasdaq Composite declined by 0.5% after rising as much as 0.5% earlier in the session.
Despite Friday’s losses, all three major indexes still managed to close the week with gains, reflecting the market’s broader resilience heading into the final stretch of summer trading.
Treasury markets responded sharply to Warsh’s remarks, with yields on short-dated two-year notes rising roughly 8 basis points even as 30-year bond yields fell by approximately 1.5 basis points.
The diverging moves created what traders call a “bear flattener,” a pattern where the spread between short-term and long-term yields closes as near-term rate expectations climb.
Warsh reaffirmed his commitment to returning inflation to the Fed’s 2% goal and noted that interest rates remain the central bank’s “predominant tool” to achieve that objective.
He also stressed the importance of focusing on incoming data rather than forward guidance, warning against what he described as a “hall of mirrors” problem that could distort policy decisions.
Warsh has been notably more tight-lipped than his predecessors since taking the helm at the Fed, and investors closely parsed every word of his debut Jackson Hole keynote for directional signals on rates.
With labor market data and major tech earnings scheduled for the week ahead, markets face a potentially volatile stretch as traders recalibrate their expectations for Federal Reserve policy.
