Fed hawks gain the upper hand: Warsh's first meeting hinted at a rate hike in 2026
The first Federal Reserve meeting under the leadership of new Chairman Kevin Warsh delivered an unpleasant surprise to the markets. Although the key interest rate was left unchanged in the range of 3.50%–3.75% (the fourth consecutive meeting to do so), the regulator's rhetoric shifted sharply. The most alarming signal: nine out of eighteen members of the Federal Open Market Committee (FOMC) voted for a rate hike in 2026.
Tone shifts: from easing to neutrality
In the accompanying statement, the Fed removed the wording about "additional adjustments" to policy. Instead, the regulator adopted a wait-and-see stance, emphasizing that future decisions are entirely dependent on incoming macroeconomic data. This is a stark contrast to market expectations, which had associated Warsh's arrival with a softer approach. Now we see a clear signal: inflation, stubbornly hovering near 4.2%, leaves the FOMC no choice but to prepare for tightening.
In essence, the markets received a "hawkish" neutrality. Citadel Securities' forecast of a growing likelihood of a rate hike as early as September, amid a strong labor market, high demand, and AI booms, now looks less like a warning and more like a consensus forecast.
Market reaction: flight from risk
Financial markets immediately responded with a sell-off. The S&P 500 index fell by 0.6%, the Nasdaq Composite lost 0.7%, and the Dow Jones dropped 160 points by midday. Investors rushed into safe-haven assets, causing government bond yields to rise: the yield on two-year Treasuries jumped 11 basis points to 4.153%, and the ten-year yield rose 4 basis points to 4.469%.
The strengthening dollar against this backdrop puts additional pressure on commodities and cryptocurrencies, which are traditionally sensitive to monetary policy tightening.
My expert opinion
Markets have been trapped in illusions about a "dovish" Fed pivot for too long. The current situation is a classic example of how structural inflation (caused by supply shocks and fiscal stimulus) overcomes cyclical expectations. For the crypto market, this means a prolonged period of high volatility and correlation with traditional risk assets until the regulator gives a clear signal that the tightening cycle is over. The "bullish" scenario for Bitcoin is postponed until the labor market begins to cool and inflation confidently declines toward the target level of 2%.