Equities rise with 2-year yields, dollar as rate hike bets rise following Warsh speech
A trader works on the floor of the New York Stock Exchange in New York City, U.S., August 21, 2026. REUTERS/Jeenah Moon/File Photo
NEW YORK/LONDON Aug 28 : MSCI's global equities gauge rose and short-dated U.S. Treasury yields climbed with the dollar on Friday as traders added to bets for an interest rate hike after a speech by Federal Reserve Chair Kevin Warsh.
Warsh said at the Fed's annual economic symposium in Jackson Hole that the U.S. central bank will "have work to do" if policymakers are not confident that underlying inflation is returning to its 2 per cent target, in remarks that acknowledged financial conditions do not appear restrictive.
After the comments, bets that rates would be raised at the September meeting rose to a 55.7 per cent probability from 35.4 per cent on Thursday, according to CME Group's FedWatch tool. Three Fed officials have already warned about sticky inflation, but Warsh had previously resisted giving forward guidance on the path of interest rates.
"He had to come out and say something about the policy outlook, reiterating the Fed's intent to control inflation, reinforcing the Fed's inflation-fighting credentials," said Gary Schlossberg, global strategist at Wells Fargo Investment Institute.
"He threw a lot of dots out there and when you connect them, in effect, that's what he was saying. Unless inflation rolls over, and we don't expect it to. If anything, the pressure may build a bit over the next 6 to 8 months. He didn't come right out and say it, but all the ingredients seem to be there at this point for at least one rate increase, if not more, going forward."
Among Wall Street indexes, at 11:09 a.m. ET the Dow Jones Industrial Average rose 162.95 points, or 0.30 per cent, to 53,732.39, the S&P 500 rose 29.12 points, or 0.38 per cent, to 7,760.11 and the Nasdaq Composite rose 111.40 points, or 0.41 per cent, to 26,652.75.
MSCI's gauge of stocks across the globe rose 2.76 points, or 0.24 per cent, to 1,157.46 while the pan-European STOXX 600 index rose 0.56 per cent.
In the bond market, the 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 7.84 basis points to 4.312 per cent, from 4.232 per cent late on Thursday.
The yield on benchmark U.S. 10-year notes rose 2.01 basis points to 4.692 per cent, while the 30-year bond yield fell 0.73 basis points to 5.1837 per cent from 5.191 per cent late on Thursday.
“Markets took it a bit hawkishly. We saw the market price in more hikes,” said Molly Brooks, U.S. rates strategist at TD Securities. “The one hawkish thing to note is that he did mention that the labor market is stable and output is strong, and then obviously they're concerned around inflation, so I think that's what led markets to view this as somewhat hawkish.”
In currencies, the U.S. dollar extended gains after Warsh hinted that rate hikes may be needed.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.36 per cent to 99.47, with the euro down 0.35 per cent at $1.161.
Against the Japanese yen, the dollar strengthened 0.33 per cent to 159.92.
In cryptocurrencies, bitcoin fell 0.89 per cent to $79,382.45.
Meanwhile, oil prices drifted lower on the day and were on track for their first weekly decline in three weeks as traders weighed crude flows making it through the Strait of Hormuz against the deadlock in U.S.-Iran diplomacy.
U.S. crude fell 0.63 per cent to $83.00 a barrel and Brent fell to $89.40 per barrel, down 0.33 per cent on the day.
In precious metals, spot gold fell 0.61 per cent to $4,572.99 an ounce while spot silver rose 0.71 per cent to $69.75 an ounce.
