US stocks slip as Fed rate-hike odds climb
Major U.S. indexes fell modestly on Friday while market expectations rose to about 60% that the Federal Reserve will raise rates next month, after Fed chairman Kevin Warsh emphasized short-term rates as the primary tool to curb inflation.
U.S. equity markets edged lower on Friday, with the S&P 500 down 0.3%, the Dow Jones Industrial Average slipping 0.1%, and the Nasdaq falling 0.5% as investors priced in a higher likelihood of a Federal Reserve rate hike. The shift followed Fed Chairman Kevin Warsh’s remarks at the Jackson Hole symposium, where he stressed that short-term interest rates remain the “predominant tool” for achieving the Fed’s dual mandate of price stability and a strong labor market.
"Short-term interest rates are the predominant tool," Warsh said, adding that he would be "hard pressed to describe broad financial conditions as restrictive." He also said the Fed would let incoming data, rather than forward guidance, shape policy decisions.
The two-year Treasury yield rose to 4.34% from 4.22% after the speech, reflecting heightened expectations that the Fed may act soon. CME Group data showed the probability of a rate increase in the next month climbing to roughly 60% from 35% a day earlier. Longer-term yields moved modestly, with the 10-year Treasury at 4.72% and the 30-year at 5.20%.
Analyst Brian Jacobsen warned that Warsh’s approach could clash with recent Treasury bond-buyback operations, which aim to temper elevated long-term yields.
On the corporate front, Gap Inc. surged 12.9% after reporting quarterly profit above expectations and announcing a new head for its Old Navy division. Conversely, Marvell Technology shares dropped 10.1% despite posting earnings that beat forecasts, as analysts noted that much of the AI-related optimism had already been priced into the stock.
International markets showed mixed results, with European indexes gaining while South Korea’s Kospi fell 1.8% and France’s CAC 40 rose 1%.