The Fed is taking a pause but preparing a strike: a signal for a rate hike in 2026
Kevin Warsh's first meeting as head of the Federal Reserve will be remembered not so much for the decision as for the tone. The key interest rate remained in the range of 3.50%–3.75% — unchanged for the fourth consecutive time, and markets had expected exactly that. But the real surprise lay in the details: nine out of 18 FOMC members voted for a rate hike as early as 2026. This is a radical reversal from previous expectations, when the majority leaned toward easing or a prolonged pause.
Neutrality as a Cover for a Hawkish Stance
The official statement dropped the phrase about "additional rate adjustments." The Fed's rhetoric is now purely neutral, entirely dependent on incoming data. However, behind this apparent restraint lies an alarming signal: inflation stubbornly holds at around 4.2% year-over-year, double the 2% target. Citadel Securities has already warned that markets are underestimating the risk of a rate hike as early as September, citing sustained wage growth, high demand, supply chain disruptions, and a boom in AI investment.
Market in Disarray: Sell-off in Stocks and Bonds
Wall Street's reaction was immediate. The S&P 500 fell 0.6%, the Nasdaq Composite lost 0.7%, and the Dow Jones Industrial Average dropped 160 points (0.3%). The yield on two-year Treasury notes surged 11 basis points to 4.153%, while the ten-year yield rose to 4.469%. This indicates that investors are pricing in a tighter monetary policy scenario.
Warsh's debut deserves particular attention. At his first press conference, he made it clear that he prefers a "more restrained" Fed and a reduction in the volume of advance signals to the market. This dashed hopes for a "dovish" approach that many had associated with his arrival. Fidelity analysts had warned of potential volatility in the debt market due to uncertainty in communications, and their forecast came true.
My analysis: The market, accustomed to soft rhetoric, was unprepared for such a turn. If inflation continues to be stubborn and geopolitical risks (e.g., the energy crisis linked to Iran) intensify price pressures, a September rate hike will cease to be just a hypothesis. For cryptocurrencies, this means increased correlation with traditional risk assets in the short term, but in the long term, a potential strengthening of the dollar and an outflow of liquidity from speculative instruments.