The Fed's hawkish signal: rates could rise in 2026, and markets are already in turmoil
The first meeting of the Federal Open Market Committee (FOMC) under the leadership of new Federal Reserve Chairman Kevin Warsh will be remembered not so much for the decision itself, but for its tone. As expected, the key interest rate was kept in the range of 3.50%–3.75% — this is already the fourth consecutive meeting without changes. However, the real surprise lay in the rhetoric and forecasts.
Nine out of eighteen FOMC participants now forecast at least one rate hike in 2026. This is a radical shift compared to previous meetings, where expectations of a cut or at least a prolonged pause dominated. The wording about "additional rate adjustments" disappeared from the accompanying statement, replaced by dry, neutral language emphasizing the complete dependence of future decisions on incoming data.
Inflation Dictates the Terms
Inflation in the US stubbornly hovers near the 4.2% annual mark, more than double the Fed's 2% target. Against the backdrop of sustained wage growth, high consumer demand, supply chain disruptions, and booms in the AI sector, the regulator sees no grounds for easing policy. Citadel Securities has already warned that markets are underestimating the risk of a rate hike as early as September 2026, pointing to the same macroeconomic factors.
At his first press conference, Warsh made it clear that he prefers a "more restrained" Fed and intends to reduce the volume of advance hints for the market. This dashed the hopes of those who associated his arrival with a softer course. Fidelity analysts had warned of volatility in the debt market due to uncertainty in communications, and their forecast proved correct.
Market Reaction: Sell-off and Flight to the Dollar
Markets 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 (0.3%). The yield on two-year Treasury notes jumped by 11 basis points to 4.153%, and on ten-year notes by 4 basis points to 4.469%. The US dollar strengthened amid a flight from risk.
This outcome once again exposes deep divisions within the Fed, especially against the backdrop of a growing energy crisis related to Iran, which further fuels inflation and increases uncertainty in economic growth forecasts.
My view: Markets have lived too long in the "rates have peaked" paradigm, ignoring the structural factors driving inflation. The FOMC signal is not just "hawkish"; it is an acknowledgment that the era of cheap money has definitively ended. For cryptocurrencies and risky assets, this means a prolonged period of pressure, and any bounce will likely be an opportunity to lock in profits rather than the start of a new rally.