Stock Futures Rise, Treasuries Recover After Warsh’s Hawkish Tone

Key Points

1. Treasuries pared losses and US equity futures climbed after the Fed's first rate hike since 2023.
2. The FOMC voted unanimously for a quarter-point increase to a 3.75%-4% range.
3. Markets now price roughly 50% odds of another Fed hike in October.

The latest:

Two-year Treasury yields slipped one basis point to 4.72%, retreating from their highest level since 2024, while S&P 500 and Nasdaq 100 futures gained more than 0.6%. Bloomberg reported the recovery followed Federal Reserve Chair Kevin Warsh’s insistence on tackling inflation after the central bank’s first rate increase since 2023. The Bloomberg dollar gauge rose for a fourth day.

Details:

• The decision: The Federal Open Market Committee voted unanimously to raise the benchmark rate by a quarter point to a range between 3.75% and 4%, according to Bloomberg. The Fed’s dot plot, which maps policymakers’ rate projections, pointed to one more increase this year.
• Warsh’s message: Warsh said the hike had removed a dose of accommodation, reinforcing the inflation-fighting message he delivered at Jackson Hole last month. He told reporters Wednesday that too many goods and services categories were posting annual price increases above 3% over both six- and 12-month periods.
• The bond move: Benchmark 10-year and 30-year yields each fell about two basis points, Bloomberg reported. Asian bonds reversed earlier losses and tracked the US Treasury rally, after the two-year yield had spiked in the previous session to its highest since 2024.
• The dollar: Bloomberg’s dollar strength index rose for a fourth consecutive session, pushing the US currency to its strongest level in more than a month. Money markets priced roughly 50% odds of another Fed increase in October.
• Equities: S&P 500 and Nasdaq 100 futures advanced more than 0.6%, recovering after Wall Street shares earlier dropped to their lowest levels since July on bets the Fed would keep raising rates to fight inflation. Japanese and Taiwanese equity benchmarks posted limited gains.
• The analyst read: Charu Chanana, chief investment strategist at Saxo Markets in Singapore, called it a credibility relief trade rather than a Goldilocks scenario. She said Warsh had bolstered the Fed’s inflation-fighting credibility, visible in dollar strength, while the long end of the curve avoided a disorderly move higher.
• Growth risk: Chanana said markets still acknowledge some growth risk from tighter policy, but contained long-end moves, resilient tech shares and calmer Asian trading suggested “investors are comfortable that a more hawkish Fed hasn’t turned into another long-end yield shock.”
• The Trump response: President Donald Trump said on social media after the decision that US rates should be at 1% or lower, Bloomberg reported, but he stopped short of criticizing Warsh directly.
• Commodities: Brent crude held the previous session’s losses, trading near $105.75 a barrel after falling as much as 5% Wednesday, as Saudi Arabia sought to restore about half of East-West pipeline capacity within days following drone strikes that shut it last week. Gold rebounded to about $4,280 an ounce.
• The pace question: Chris Zaccarelli of Northlight Asset Management said history shows the Fed raises rates multiple times once it starts, but the pattern is less clear on whether increases come at consecutive meetings or with pauses in between.

Between the lines:

The unanimous vote and the dot plot’s signal of one more hike put upcoming economic data under heavier scrutiny before October. Gerald Gan of Reed Capital Partners argued markets draw reassurance from the Fed tightening into an economy still showing relative resilience rather than one already deteriorating.

What’s next

Monetary policy decisions follow in the United Kingdom on Thursday and Japan on Friday. Investors will weigh incoming inflation and activity data before the Fed’s October meeting, where markets currently see roughly even odds of another increase.