NEW YORK (AP) — The U.S. stock market is holding relatively steady Friday, and expectations are building in the bond market for the Federal Reserve to hike interest rates soon to get the nation’s high inflation under control.
The S&P 500 rose 0.3%. The Dow Jones Industrial Average was up 89 points, or 0.2%, as of 10:45 a.m. Eastern time, and the Nasdaq composite was 0.3% higher.
The bond market reacted more strongly following Kevin Warsh’s first speech as Fed chairman at the annual economic symposium in Jackson Hole, Wyoming. The mountain setting has been the backdrop for major Fed policy announcements in the past, and the pressure was on Warsh.
Worries had grown that Warsh’s tough talk about bringing inflation down to the Fed’s 2% target might be just talk unless the Fed backs it up with action. Fed hikes in short-term interest rates could help bring inflation under control, but they would also slow the economy and hurt investment prices. And President Donald Trump, who appointed Warsh, has been vocal about wanting interest rates to be lower rather than higher.
Warsh on Friday was again adamant that he wants to give financial markets fewer clues about what the Fed plans to do with rates for its two jobs of keeping inflation low and the job market strong. He has said he wants markets to react to incoming data on the economy and inflation rather than to what the Fed says.
But Warsh also said that “short-term interest rates are the predominant tool” for the Fed to do its twin jobs. And he said, “I would be hard pressed to describe broad financial conditions as restrictive,” implying that short-term interest rates are not high enough to tamp down the economy and inflation.
The yield on the two-year Treasury, which closely tracks expectations for what the Fed will do with its federal funds rate, jumped to 4.30% from 4.22% just before the speech.
Traders are betting on a nearly 46% probability the Fed will hike its federal funds rate as soon as next month, up from the 35% probability they saw a day earlier, according to data from CME Group.
Longer-term yields, which move more on expectations for what the economy and inflation will do in the coming years, were mixed. The 10-year Treasury yield held at 4.67%, where it was late Thursday, while the 30-year Treasury yield fell to 5.16% from 5.19% late Thursday. That could indicate bond investors see less of a threat of high inflation lasting for years.
Yields had risen so high on long-term bonds that the U.S. Treasury Department made an unusual move last week to intervene in the bond market, though analysts said it will likely have only a limited effect.
On Wall Street, Gap jumped 13.9% after the retailer reported stronger profit for the latest quarter than analysts expected. It also said Michael Francis, an industry veteran who began his career on the retail sales floor, will take over as head of its Old Navy stores.
Marvell Technology weighed on the market, falling 7% even though the chip company reported profit and revenue for the latest quarter that edged past analysts’ expectations. CEO Matt Murphy said its business related to artificial intelligence technology is strong, and it raised its revenue growth forecast.
But analysts said much of that optimism may have already been baked into Marvell’s stock price, which came into the day with a surge of 184% for the year so far.
In stock markets abroad, indexes rose across much of Europe following a mixed finish in Asia. South Korea’s Kospi fell 1.8%, and France’s CAC 40 rose 1% for two of the world’s bigger moves.
AP Business Writers Michelle Chapman and Elaine Kurtenbach contributed to this report.
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