Warsh speech raises stakes for September Fed decision, BofA says
TLT•Markets and rates move lower
Wall Street indexes dipped, with the Dow leading losses, off 0.6%.
Comms svcs led S&P 500 sector losses, while energy was the sole gainer.
The STOXX 600 was down about 0.6%.
The dollar dipped, U.S. crude was up more than 2%, gold slipped about 0.5%, and bitcoin was roughly flat.
U.S. 10-year Treasury yields rose to about 4.76%.
BofA says Warsh raised the bar for holding rates steady
Federal Reserve Chair Kevin Warsh appears to have raised the bar for holding interest rates steady in September, putting the onus on the U.S. central bank chief to deliver a rate hike next month, Bank of America analysts said.
The Fed will "have work to do" if policymakers do not gain the confidence they need that inflation is heading down to 2%, Warsh said on Friday, coming closer than he has before to acknowledging that higher interest rates may be needed to ease price pressures.
His speech at the Jackson Hole economic symposium raised the hurdle for keeping rates on hold by arguing that the Fed should focus on trends rather than "isolated data points" and that underlying inflation has not "meaningfully improved", the analysts, led by Aditya Bhave, said.
Bank of America has argued that the Fed should raise rates in September, a view that appears broadly reflected in financial markets. Options markets were pricing in a 66.1% chance of a quarter-point increase next month, according to CME's FedWatch tool.
"We aren't declaring victory yet, since very soft Aug data could still change the picture. But absent a material downside surprise, the onus is now on Warsh to deliver a Sep hike. Otherwise, he risks undermining some of the credibility he gained on Friday, in our view," the analysts said.
