Rate-Hike Bets Rise After Warsh Speech, Fed Chair Talk of Price Stability

Stocks, the dollar and short-term Treasury yields all moved higher in the same session on August 28, an unusual combination that traders linked to a speech from Kevin Warsh and separate remarks from the Federal Reserve chair. The Fed chair said the central bank's job is "to deliver stable prices," language that some investors read as an opening for further tightening rather than cuts. The simultaneous rise in equities and rate-hike expectations matters because it suggests investors do not yet see tighter policy as a threat to growth or earnings. Usually, higher hike odds push stocks down and yields up together, not stocks and yields up together with the dollar. That the market absorbed the hawkish tone without selling off signals confidence that the economy can handle it. What's unresolved is whether this pricing holds once the next batch of inflation data lands. If price growth cools, the market may have to unwind these hike bets quickly.