U.S. stock futures slip as chances of rate hike rise after Warsh's Jackson Hole comments

By Mike Murphy

Federal Reserve Chairman Kevin Warsh expressed concern about high inflation Friday at the Jackson Hole Economic Symposium.

U.S. stock-index futures declined on Sunday, as investors ponder the likelihood of a fresh interest-rate hike and as new fighting between the U.S. and Iran threatens to reignite the conflict.

Dow Jones Industrial Average futures (YM00) were down about 190 points, or 0.4%, as of 11 p.m. Eastern on Sunday. S&P 500 futures (ES00) dipped 0.5% and Nasdaq-100 futures (NQ00) were down about 0.7%. Bitcoin (BTCUSD) was trading below $78,000, after rallying nearly 25% over the past month.

West Texas Intermediate crude (CL.1) and Brent crude (BRN00), the global benchmark, rose more than 2% late Sunday after a weeks-long quiet spell in the Iran war was broken when U.S. officials said American forces had struck Iranian rocket launchers along the Strait of Hormuz, the Associated Press reported. Iran vowed to retaliate and missiles were reportedly fired at U.S. bases in Jordan in response.

The attacks were "a fresh reminder that this conflict still has plenty of dry tinder lying around," Stephen Innes, managing partner at SPI Asset Management, wrote in a note Sunday night.

"The timing could hardly be worse for markets," he continued. "Oil does not need to return to crisis levels to matter here. It merely needs to remain expensive enough to prevent inflation from behaving as neatly as the Fed would like, because every extra dollar in crude now lands on a market that has suddenly rediscovered the possibility of another rate hike."

Those developments followed the Trump administration's announcement late Friday that it has secured a deal to assert control over a vast amount of Venezuela's oil reserves. That plan, however, leaves many practical questions unanswered, and may take years to come to fruition.

Earlier Friday, Fed Chair Kevin Warsh spoke at the annual Jackson Hole, Wyo., economic symposium, and opened the door to an interest-rate hike at the Fed's next meeting in September, saying inflation is a concern. That led to a big jump in short-term Treasury yields, as the 2-year yield rose 0.118 percentage points to 4.348% on Friday. Expectations for a rate hike next month jumped to 63% as of Sunday night, according to CME's FedWatch tool, up from 40% before Warsh's speech.

"Before Jackson Hole, the market largely asked what the economy would need to do to force the Fed back into tightening," Innes said in a separate weekend note. "Now the question is increasingly what the economy has to do to keep the Fed from tightening, and that subtle shift in the burden of proof is what the bond market understood first."

Stocks closed lower Friday as investors digested Warsh's comments, but all three major indexes still managed to end positive for the week. The S&P 500 SPX gained 0.5%, for its fourth weekly gain in the past five weeks, while the Dow DJIA rose 0.5% and the Nasdaq COMP advanced 0.9% for the week.

Investors will be looking forward this week to fresh labor data, including Friday's unemployment-rate report, as well as inflation readings on U.S. manufacturing and services.

"But the market is already looking over Friday's jobs report toward the inflation numbers waiting behind it, because that is where Warsh has told us the argument ultimately lives," Ives wrote. "A stronger jobs number, especially one accompanied by sticky wages and an unemployment rate refusing to budge, would add another log to the September fire."

On the earnings side, AI chip maker Broadcom (AVGO) reports quarterly earnings Wednesday, a week after rival Nvidia (NVDA) delivered an eye-popping revenue forecast that sent shares surging Thursday before retreating Friday. Hardware makers Dell Technologies (DELL) and Hewlett Packard Enterprise (HPE) will also report this week.

-Mike Murphy

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08-30-26 2303ET