Federal Reserve Chairman Kevin Warsh signaled increased concern about inflation during his remarks at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, on Friday, leading to significant market reactions and renewed expectations of a possible interest rate hike in September. His comments prompted a sharp rise in short-term U.S. Treasury yields, a moderate increase in longer-term yields, and declines across several major stock indexes.

Warsh’s indication that the Federal Reserve may have “more work to do” to combat inflation shifted market sentiment, with futures data from CME Group showing a jump in the likelihood of a September rate increase to approximately 58 percent, up from 35 percent just the day before. This marked a reversal from recent investor concerns that Warsh might hesitate to raise rates due to potential political pressure from President Donald Trump, a dynamic that had contributed to a recent rise in longer-term Treasury yields, which influence overall borrowing costs.

Despite Warsh stopping short of explicitly committing to a rate hike next month, the tone of his statements led some market participants to worry the Fed could be compelled to raise rates regardless of economic conditions. George Catrambone, head of fixed-income Americas at DWS, noted that while a rate increase might hurt the economy as consumer spending weakens, failing to raise rates now could damage the Fed’s credibility and potentially trigger another sell-off in longer-term bonds.

Stock markets reacted relatively mildly compared to earlier Federal Reserve communications this year. The Dow Jones Industrial Average fell less than 0.1 percent, the S&P 500 declined by 0.2 percent, and the Nasdaq Composite dropped 0.5 percent. These declines were subdued relative to the sharper market reactions following Warsh’s prior public comments in June and July, which had also surprised investors with contrasting signals about inflation risks and the Fed’s policy intentions.

The Treasury market has been notably volatile in recent weeks, with the 30-year Treasury yield rising above 5.3 percent—its highest level since 2007—after the July Fed meeting. In response, the Treasury Department announced it would more than double its purchases of longer-term Treasurys in its ongoing buyback program, aimed at supporting trading liquidity and managing yields that Treasury Secretary Scott Benton described as disconnected from economic fundamentals.

Following the Treasury’s move, longer-term yields have moderated slightly. By Friday, the 30-year bond yield had eased to approximately 5.21 percent from 5.27 percent earlier in the week, while the 10-year yield rose modestly to 4.72 percent. Treasury yields typically reflect expectations about future Fed short-term interest rates; when the Fed signals potential hikes, short-term yields tend to rise, but credible inflation control can also temper long-term rates.

Sectors sensitive to economic fluctuations were among the hardest hit on Friday, with the Russell 2000 index dropping 1.4 percent and the S&P 500 industrials sector declining 1 percent. Tony Parish, chief investment officer at Alphastat Capital Management, described Warsh’s remarks as leaving “things highly uncertain” but noted a market tilt toward the possibility of rate increases—an outlook generally viewed unfavorably by investors.

Warsh’s comments underscore ongoing tensions within the Federal Reserve as it balances inflation concerns with the risk of slowing economic growth, setting the stage for what could be a pivotal September policy decision.