The S&P 500 and Nasdaq closed lower Friday after Federal Reserve Chair Kevin Warsh reinforced the central bank’s commitment to its 2% inflation target, prompting traders to increase bets that interest rates could rise as soon as September.
By yourNEWS Media Newsroom
U.S. stocks finished mostly lower Friday as investors reassessed the outlook for interest rates following Federal Reserve Chair Kevin Warsh’s first Jackson Hole speech, in which he made clear that the central bank is not prepared to relax its fight against inflation.
The S&P 500 fell 19.94 points, or 0.26%, to close at 7,711.05, according to preliminary data.
The Nasdaq Composite declined 140.79 points, or 0.53%, to 26,400.56.
The Dow Jones Industrial Average was nearly flat, slipping 11.06 points, or 0.02%, to finish at 53,558.38.
Warsh’s remarks increased expectations that the Fed could raise rates at its Sept. 15-16 meeting, with traders adding to rate-hike bets after the chairman said recent inflation figures had not convinced him that underlying price pressures were changing direction.
Without confidence that inflation is moving clearly and rapidly enough toward the Fed’s 2% objective, policymakers would have “more work to do,” Warsh said.
Markets are now divided between expectations for a September rate increase and no change in borrowing costs, returning to a split similar to the one that existed before a series of mixed inflation readings earlier this month.
Mark Hackett, chief market strategist for Nationwide, said Warsh’s emphasis on the inflation target challenged expectations among some investors that the central bank might adopt a less aggressive stance.
“Why the market is modestly reacting is he (Warsh) is very adamant that the 2% inflation target is going to remain. He is reiterating the hawkishness, but in a more of a consistent way than an incremental way,” Hackett said.
“There’s been somewhat misguided thoughts among investors that this would soften a little bit. Clearly, that’s not the case.”
Warsh’s Jackson Hole address capped a busy week for financial markets that included earnings reports from major companies such as Nvidia and Salesforce as well as new economic data.
Bank of America U.S. economics research head Aditya Bhave said Warsh now faces pressure to translate his rhetoric into policy.
“We were encouraged by Warsh’s speech. But talk is cheap,” Bhave said in a note.
Bhave said Warsh would need to deliver a September rate hike unless August employment and inflation figures come in very weak.
Otherwise, he said, the new Fed chairman could risk damaging his credibility.
Technology shares were mixed after a strong rally in the previous session driven by Nvidia’s blockbuster forecast, which reinforced expectations that the artificial intelligence investment boom still has room to expand.
Nvidia shares slipped Friday.
Marvell Technology fell sharply as investors questioned when the company would begin realizing revenue from its artificial intelligence chip agreement with Alphabet’s Google, despite Marvell raising its 2027 revenue forecast.
Other large technology companies performed better.
Alphabet advanced, helping make the S&P 500 communication services sector the strongest positive contributor to the broader index.
Apple also gained.
Salesforce extended its advance from the previous session and helped support the Dow.
Elsewhere, PayPal shares fell one day after Bloomberg News reported that a consortium involving buyout firm Advent and payment processor Stripe had abandoned its pursuit of the payments company.
Gap shares moved higher after the retailer named industry veteran Michael Francis as the new chief executive of Old Navy and increased its annual profit forecast.
Ulta Beauty declined after the cosmetics retailer reported weaker comparable-sales growth during the second quarter.
Investors also received another reading on consumer confidence Friday.
The University of Michigan’s final consumer sentiment index came in at 51.7, slightly above the 51 reading expected by economists surveyed by Reuters.
Despite strength in several individual stocks, Warsh’s inflation message dominated the broader market session.
His insistence that the Fed’s 2% target remains firmly in place reinforced expectations that policymakers could keep monetary conditions tight or raise borrowing costs further if coming data fail to show sufficient progress.
The market reaction was relatively modest, but the shift in rate expectations placed particular pressure on the technology-heavy Nasdaq and interrupted some of the momentum generated by strong artificial intelligence-related corporate forecasts earlier in the week.
With September’s Fed meeting approaching, investors are now turning their attention to upcoming August jobs and inflation reports, which could determine whether Warsh’s warning translates into an actual rate increase.
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