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Federal Reserve Chair Kevin Warsh signaled at Jackson Hole that the central bank may not be finished fighting inflation, putting interest-rate expectations at the center of the trading session. As he began speaking at the Federal Reserve Bank of Kansas City’s annual conference, U.S. stocks edged lower and short-term Treasury yields moved higher. Traders took the remarks as a sign that rates could rise, with the two-year yield moving higher from its pre-speech level. The market response underscored the importance of a speech investors had expected to offer both an assessment of the economy and reassurance that policymakers remained prepared to increase borrowing costs if needed.

Details

• Yield reaction: The two-year Treasury yield recently traded at 4.28%, up from roughly 4.23% before Warsh began speaking. The move concentrated in shorter-dated government debt, which responded directly to the possibility that the Federal Reserve could raise interest rates again. His remarks were still under way as Treasury and equity markets adjusted to the inflation message.
• Stocks turn lower: U.S. stocks edged lower as the speech began, while the Dow Jones Industrial Average registered a modest gain. The mixed performance came as traders weighed Warsh’s inflation signal against company earnings and pressure across the semiconductor sector.
• Trader expectations: Markets had been looking for Warsh to provide a reading on the economy and clarify the central bank’s willingness to raise rates if necessary. That attention was heightened by his more tight-lipped public approach compared with his predecessors.
• Marvell disappointment: Marvell Technology shares sank after its earnings disappointed investors, adding pressure to chip stocks. The decline came even though the semiconductor company raised its guidance and reported increases in both revenue and profit.
• High AI bar: Marvell’s selloff highlighted the demanding expectations surrounding companies linked to artificial intelligence. Stronger revenue, higher profit and an improved outlook were not enough to prevent the shares from falling as investors assessed the results.
• Oil retreats: Oil prices moved lower alongside the shifts in stocks and Treasury yields. Brent crude futures traded below $88 a barrel, placing the energy market among the assets responding during a session dominated by monetary-policy signals and technology earnings.

Background

The remarks were delivered at the Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyoming. The gathering placed Warsh’s assessment of inflation, the economy and interest rates at the center of attention across financial markets.

What’s next

The next indicators will be the two-year Treasury yield’s direction from 4.28% and the response of U.S. stocks as Warsh completes his remarks. Both will show how traders are pricing the prospect of another interest-rate increase.

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