Equities rise with 2-year yields, dollar as rate hike bets rise following Warsh speech

Global equities and short-dated U.S. Treasury yields increased, along with the dollar, following Federal Reserve Chair Kevin Warsh's speech at the annual economic symposium in Jackson Hole. Warsh suggested that if policymakers are not confident that inflation will return to its 2% target, the central bank will have work to do. This acknowledgment, combined with the fact that financial conditions do not appear restrictive, led to increased bets for a rate hike at the September meeting.

The probability of a rate increase at this meeting rose from 35.4% to 55.7% according to the FedWatch tool. Three Fed officials had previously voiced concerns about sticky inflation, but Warsh had previously been reluctant to provide forward guidance on interest rate policy. Analysts noted that Warsh's remarks reinforced the Fed's commitment to controlling inflation, making it more likely that at least one rate increase, if not multiple, will occur in the future.