Market Reaction to Warsh's Speech
On Friday, U.S. equities showed little change, while bonds experienced greater volatility following Federal Reserve Chair Kevin Warsh's inaugural address at the Jackson Hole symposium. The S&P 500 edged up 0.3%, the Dow added 89 points (0.2%), and the Nasdaq gained 0.3% as of 10:45 a.m. Eastern.[S1]
The two-year Treasury yield, sensitive to Fed policy expectations, climbed to 4.30% from 4.22% prior to the speech. Market participants raised the odds of a rate hike next month to nearly 46%, up from 35% the previous day, based on CME data. Longer-term yields were mixed: the 10-year stayed at 4.67%, while the 30-year slipped to 5.16%.[S1]
Warsh's Stance on Inflation and Rates
Warsh noted that recent inflation data show some moderation, but he argued they do not signal a meaningful improvement in underlying trends. He stressed the need for confidence that inflation is moving clearly and sufficiently toward the 2% target, adding that otherwise, further action is required.[S4]
He reiterated his reluctance to provide forward guidance, saying it constrains the Fed's flexibility. However, he indicated that current rates are not sufficiently restrictive, citing strong business investment and consumer spending. He pointed out that 54% of government-tracked goods and services have seen price increases of 3% or more over the past year, exceeding the pre-pandemic norm.[S4]
Market Movers and Global Trends
Gap jumped 13.9% after reporting stronger quarterly profit than expected and announcing Michael Francis as the new head of Old Navy. Marvell Technology fell 7% despite beating profit and revenue estimates, as analysts said much of the optimism was already priced in after a 184% surge this year.[S1]
Globally, European stocks mostly advanced after a mixed session in Asia. South Korea's Kospi dropped 1.8%, while France's CAC 40 rose 1%. The U.S. Treasury Department took the unusual step last week of intervening in the bond market, though analysts expect the impact to be limited.[S1][S3]
