The Fed's sharp pivot: rates could rise as early as 2026
Kevin Warsh's first meeting as head of the Federal Reserve was a cold shower for the markets. Although the key interest rate was left unchanged in the range of 3.50%–3.75% — for the fourth consecutive time — the real surprise lay in the tone and forecasts. Nine out of 18 FOMC participants now see at least one rate hike in 2026. This is a radical shift from previous expectations, where voices for a cut or a prolonged pause dominated.
Key signal: The wording about "additional rate adjustments" disappeared from the official statement. Instead, the regulator switched to a purely neutral, "data-dependent" approach. This is a direct acknowledgment that inflation remains persistently high — around 4.2% year-over-year — and shows no signs of returning to the target level of 2%.
Hawks Take Over: What's Behind the Shift in Course
Markets, which had expected a softer tone from Warsh, were unpleasantly surprised. At his first press conference, the new Fed chief made it clear that he prefers a "more restrained" approach and intends to reduce the volume of advance hints for the market. This dashed hopes for a "dovish" pivot that many had associated with his appointment.
The Citadel Securities forecast only heightened anxiety: the company's analysts warn that markets are underestimating the risk of a rate hike as early as September. Drivers cited include a strong labor market, high consumer demand, supply chain disruptions, and an AI investment boom. All these factors continue to fuel inflationary pressure.
Fidelity analysts, in turn, predicted increased volatility in the debt market due to uncertainty in Fed communications. Their forecast came true: Treasury yields rose, and the dollar strengthened.
Market Reaction: Sell-off and Risk Aversion
Wall Street reacted immediately and painfully. The S&P 500 index fell by 0.6%, the Nasdaq Composite lost 0.7%, and the Dow Jones dropped by 160 points. The yield on two-year government bonds jumped by 11 basis points to 4.153%, and the ten-year yield rose by 4 basis points to 4.469%.
This result once again underscores the depth of divisions within the Fed. Market participants are now closely watching the situation unfold against the backdrop of the energy crisis, which is fueling inflation expectations and adding uncertainty to the assessment of economic growth.
Expert comment: Markets, fixated on finding "dovish" signals, missed the main point: the Fed under Warsh intends to fight inflation at any cost, even at the expense of an economic slowdown. For cryptocurrencies and risk assets, this means a continuation of a period of high volatility and pressure from expensive money. Investors should prepare for the fact that the "hawkish" scenario is not just a theory, but a very real baseline forecast for the second half of 2026.