Warsh's Hawkish Remarks Ease Doubts on Fed's Inflation-Fighting Resolve; Short-Dated Bonds Tumble, Gold Drops Over 2% Intraday

Warsh warned that if underlying inflation does not clearly and quickly return to the 2% target, the Fed "still has work to do," prompting markets to immediately raise expectations for future short-term interest rates. Following his remarks, the dollar strengthened, the two-year Treasury yield rose 10 basis points intraday, economically sensitive stocks came under pressure, and small-cap and transportation stocks declined.