The Fed takes a pause but prepares a strike: 9 out of 18 FOMC members voted for a rate hike in 2026
Kevin Warsh's first meeting as head of the Federal Reserve was not just a formal rate hold, but a powerful signal to the markets. The Federal Open Market Committee (FOMC) left the key interest rate in the range of 3.50%–3.75% — this is already the fourth consecutive meeting without changes, which came as no surprise. However, the real intrigue lay in the details.
The main takeaway: The Fed's hawkish stance is not only persisting but intensifying. Nine out of eighteen meeting participants voted for a rate hike in 2026. This is a dramatic reversal from previous expectations, when the majority leaned towards easing or, at the very least, a prolonged pause.
Neutral rhetoric with a hawkish undertone
The Fed's official statement dropped the phrase about "additional rate adjustments." Now, the regulator emphasizes a neutral, entirely data-dependent approach. At first glance — a soft stance, but in reality, it signals that the regulator has no intention of providing "forward guidance" to the markets and is ready to act aggressively if inflation does not relent.
Inflation, I should note, stubbornly hovers near 4.2% year-over-year, more than double the Fed's 2% target. The reason is not only resilient consumer demand but also supply shocks. The labor market remains overheated, and investments in AI and energy continue to fuel prices.
Analysts at Citadel Securities have already warned that markets are underestimating the risk of a rate hike as early as September. Their forecast is based on strong wage growth, sustained demand, and supply chain disruptions.
Market reaction: sell-off in stocks and bonds
Wall Street responded immediately. The S&P 500 index fell by 0.6%, the Nasdaq lost 0.7%, and the Dow Jones dropped 160 points. The yield on two-year Treasury notes jumped 11 basis points to 4.153%, while the ten-year yield rose 4 basis points to 4.469%.
This rise in yields reflects not only a reassessment of rate expectations but also growing uncertainty amid the energy crisis linked to the situation around Iran. Markets are beginning to price in a scenario where the Fed will be forced to fight inflation even at the cost of slowing economic growth.
My view: We are witnessing a classic "hawkish surprise" from the new Fed chair. Kevin Warsh, known for his tough monetary stance, is not just holding rates but laying the groundwork for tightening. For the crypto market, this is a bearish signal in the short term: rising Treasury yields and a strengthening dollar traditionally weigh on risky assets. However, if inflation begins to slow faster than expected, we could see a sharp trend reversal. For now, we brace for volatility.