US Stocks Drift Lower Friday           08/28 15:24

   The bond market swung Friday as investors built bets that the Federal 
Reserve may hike interest rates soon to get the nation's high inflation under 
control. 

   NEW YORK (AP) -- The bond market swung Friday as investors built bets that 
the Federal Reserve may hike interest rates soon to get the nation's high 
inflation under control. U.S. stocks, meanwhile, dipped but not by much after 
economists said a speech by Chairman Kevin Warsh helped strengthen faith that 
the Fed will do what's needed to bring inflation down, even if it causes pain 
for the economy in the short term.

   The S&P 500 fell 0.2% after flipping between modest gains and losses through 
the morning. The Dow Jones Industrial Average dipped 9 points, or less than 
0.1%, and the Nasdaq composite slipped 0.5%.

   The reaction was stronger in the bond market following Warsh's first speech 
as chairman of the Fed at an annual economic symposium held in Jackson Hole, 
Wyoming. The mountain setting has been the backdrop for major Fed policy 
announcements in the past, and the pressure was on Warsh.

   Worries had grown that his tough talk about getting inflation down to the 
Fed's 2% target may be just that, unless the Fed backs it up with action. The 
Fed could hike short-term interest rates to get inflation under control, but it 
could also feel deterred from doing so because that would slow the economy and 
hurt prices for investments. And President Donald Trump, who appointed Warsh, 
has been vocal about wanting interest rates to be lower rather than higher.

   Warsh was adamant again on Friday that he wants to give financial markets 
fewer clues about what the Fed plans to do with rates for its two jobs of 
keeping inflation low and the job market strong. He has said he wants markets 
to react to what incoming data says about the economy and inflation rather than 
what the Fed says.

   But Warsh also said Friday that "short-term interest rates are the 
predominant tool" for the Fed to do its job. And he said, "I would be hard 
pressed to describe broad financial conditions as restrictive," an implication 
that short-term interest rates may not be high enough to tamp down the economy 
and inflation.

   The yield on the two-year Treasury, which closely tracks expectations for 
what the Fed will do with its federal funds rate, jumped to 4.35% from 4.22% 
just before the speech.

   That's a big move for the bond market, and it was because traders upped 
their forecasts that the Fed will hike its federal funds rate as soon as next 
month. They're now betting on a nearly 58% probability of that, up from the 35% 
seen a day earlier, according to data from CME Group.

   Longer-term yields also rose following some initial zigzags, but not by as 
much as shorter-term yields. The 10-year Treasury yield climbed to 4.72% from 
4.67% late Thursday, and the 30-year Treasury yield got to 5.21% from 5.19%.

   All the moves, including the modest ones for stocks even though higher 
interest rates tend to hurt them, indicate investors "pricing a more credible 
Fed," according to economists at Bank of America led by Aditya Bhave.

   "The positive market reaction highlights that investors place a premium on 
policy clarity, even when that clarity carries" a message implying higher 
interest rates, according to Seema Shah, chief global strategist at Principal 
Asset Management.

   Yields had gotten so high for longer-term bonds this summer, in part because 
of worries about inflation staying high in the future, that the U.S. Treasury 
Department made an unusual move last week and said it would buy back more 
bonds, though analysts said it will likely have only a limited effect.

   On Wall Street, Gap jumped 12.9% after the retailer reported stronger profit 
for the latest quarter than analysts expected. It also said Michael Francis, an 
industry veteran who began his career on the retail sales floor, will take over 
as head of its Old Navy stores.

   Marvell Technology fell 10.3% even though the chip company reported profit 
and revenue for the latest quarter that edged past analysts' expectations. CEO 
Matt Murphy said its business related to artificial-intelligence technology is 
strong, and it raised its forecasts for upcoming revenue growth.

   But analysts said much of that optimism may have already been baked into 
Marvell's stock price, which came into the day with a surge of 184% for the 
year so far.

   After rocketing higher for years because of the frenzy around AI, stocks 
across the industry are confronting skepticism that they shot too high and that 
booming demand for AI chips may fade if the AI revolution does not produce as 
much profit as promised.

   All told, the S&P 500 fell 19.23 points to 7,711.76. The Dow Jones 
Industrial Average dipped 9.45 to 53,559.99, and the Nasdaq composite sank 
138.93 to 26,402.42.

   In stock markets abroad, indexes rose across much of Europe following a 
mixed finish in Asia. South Korea's Kospi fell 1.8%, and France's CAC 40 rose 
1% for two of the world's bigger moves.