Markets react to hawkish Federal Reserve as yields rise and dollar strengthens

Federal Reserve Chair Kevin Warsh stepped up to the podium at Jackson Hole on August 28 and essentially told markets the Fed isn’t done fighting inflation. Markets, in turn, did exactly what you’d expect: Treasury yields surged, the dollar strengthened, and traders scrambled to reprice the odds of a September rate hike. The probability of a rate increase at the upcoming FOMC meeting jumped from roughly 34-35% to somewhere between 55-65% in the hours following Warsh’s speech. What Warsh actually said The Fed chair’s core message was blunt: if inflation doesn’t move closer to the 2% target, the central bank has “work to do.” Jackson Hole speeches have a long history of signaling policy shifts, and traders treat them accordingly. The current federal funds rate sits in the 3.50-3.75% range, where it has been held steady across recent FOMC meetings. But that stability has masked internal tension. Dissenters within the committee have been pushing for hikes, arguing that persistent inflation demands a more aggressive response. The numbers tell the story The 2-year yield climbed more than 10 basis points intraday. The 10-year Treasury yield reached 4.77%, its highest level since January 20...