U.S. equities closed lower on Friday as Federal Reserve Chair Kevin Warsh's hawkish remarks on inflation reinforced expectations for a possible September interest rate hike. The Dow Jones Industrial Average slipped 0.02% to 53,558.38, while the S&P 500 fell 0.26% to 7,711.05 and the Nasdaq Composite dropped 0.53% to 26,400.56.
Despite Friday's pullback, the Dow managed a 0.5% weekly gain, while the S&P 500 and Nasdaq each lost 0.5% and 0.9%, respectively. The mixed performance came as investors weighed the latest signals from the Federal Reserve's annual Jackson Hole symposium.
Warsh's inflation warning shifts rate expectations
Speaking at the Jackson Hole conference, Warsh said recent PCE and CPI readings, though better than expected, did not indicate that underlying inflation trends had "meaningfully improved." He stressed that the central bank needs to see inflation moving toward its 2% target "clearly and at sufficient speed," otherwise more work remains.
The comments prompted traders to raise their bets on a September rate hike. According to CME Group's FedWatch tool, the probability of a rate increase jumped to roughly 57% on Friday, up from 35.4% a day earlier. Short-term Treasury yields moved higher following the speech, while longer-term yields stayed roughly flat.
Market strategists viewed Warsh's remarks as a reiteration of the Fed's hawkish stance rather than a new development. Mark Hackett, chief market strategist at Nationwide, said Warsh was reinforcing the central bank's position, while Bill Birmingham of REX Financial described the speech as a strong message on inflation and monetary policy.
Chip stocks weigh on tech
Semiconductor shares dragged on the Nasdaq, with Nvidia declining and Marvell Technology tumbling about 10% after its current-quarter non-GAAP gross margin guidance disappointed investors. Marvell's shares fell despite the company raising its 2027 revenue forecast, as concerns lingered over the timing of revenue from its AI chip agreement with Alphabet.
The pullback followed a strong session for chip stocks, which had rallied after Nvidia issued a forecast signaling continued strength in AI-related demand. Most megacap technology stocks were higher, however, with Alphabet providing the biggest boost to the S&P 500's communication services sector. Apple also advanced, while Salesforce extended its previous-session gains, supporting the Dow.
Retail and payments in focus
Outside technology, Gap shares climbed after the retailer named industry veteran Michael Francis as the new chief executive of Old Navy and raised its annual profit forecast, despite a mixed quarterly report. PayPal declined after Bloomberg News reported that a consortium involving Advent and Stripe had abandoned its pursuit of the payments company. Ulta Beauty also fell after comparable sales growth slowed in the second quarter.
Investors also digested consumer sentiment data, with the final University of Michigan reading coming in at 51.7, slightly above economists' estimate of 51.
With markets now closely split between a September rate hike and a hold, upcoming inflation and employment data will likely be key for the Fed's next move. For more on how Warsh's stance is affecting other assets, see Warsh's hawkish tone hits bitcoin, gold; oil extends slide. Additionally, core PCE remains sticky at 3.3%, underscoring the inflation challenge.
This article is for informational purposes only and does not constitute financial advice.
