Minutes from the Fed’s January meeting reveal the committee to be surprisingly hawkish. Several officials openly discussed raising interest rates. When Kevin Warsh takes over as chairman this summer, the stage is set for a dramatic policy clash.
The Fed’s hawkish stance now threatens to put Warsh in the box even before he starts, raising risks for both monetary policy and the crypto market.
A hawkish committee – just before a leadership change
On January 28, the FOMC voted 10-2 to keep the policy interest rate unchanged at 3.5% to 3.75%. Governors Christopher Waller and Stephen Milan opposed it. Both men wanted a quarter-point cut, citing labor market risks.
But the broader committee took the opposite position. Several participants warned that further easing amid rising inflation could signal a weakening of commitment to the 2% target. A larger group supported keeping interest rates on hold. They wanted “clear signs that inflation is firmly back on track” before cutting rates again.
Most strikingly, several officials want their post-meeting statements to reflect the possibility of an “upward adjustment” to the federal funds rate. This was a direct reference to the possibility of rate hikes.
Powell’s resignation, Warsh’s entry into the war – and the looming policy conflict
Chairman Jerome Powell’s term ends in May. There are two more meetings he will lead. President Trump announced on January 30 that former Federal Reserve Board Director George Warsh will be his successor.
Warsh supports lowering interest rates. This is consistent with Trump’s repeated calls for cheaper borrowing. The White House claimed on Wednesday that recent data shows inflation is “cool and stable.”
But the committee’s hawkish majority may not cooperate. Rate decisions are made by 12 voting members. There are only a few lean doves. The rest see inflation risk as their top priority.
Analysts said the committee’s hawkish tone could complicate Warsh’s confirmation process and limit his scope for making cuts early in his tenure.
If approved, Warsh’s first meeting as chair will be in June. Futures traders will price the next rate cut around the same time. But the Fed’s preferred inflation measure, the PCE price index, is expected to accelerate again in the coming months. If that happens, easing could be delayed further.
Liquidity in Asia recovers and decline widens
Bitcoin began to fall shortly after the minute fell in US afternoon trading. By morning in Asia, it had fallen from around $68,300 to less than $66,500. It fell 1.6% in 24 hours.
Timing was critical. Asian traders were returning from the Lunar New Year holiday. The decline was further exacerbated by higher trading volumes and sales. Escalating tensions between the US and Iran added fuel. Oil prices rose more than 4%, further weighing on the overall crypto market’s risk appetite.
Coinbase CEO Brian Armstrong said the decline was psychological rather than fundamental. He said the exchange is buying back stocks and accumulating Bitcoin at lower prices.
what happens next
The Fed’s next meeting will be held March 17-18. The cut there is virtually off the table. The market is currently eyeing June as the earliest date.
But the real problem goes beyond timing. The question is whether Mr. Warsh can steer a deeply divided committee toward lowering interest rates as inflation remains high. The hawkish majority has made its position clear. To change that, you’ll need more than a new chair.
The macro backdrop remains difficult for Bitcoin. The combination of a more hawkish Fed, a scramble for leadership, and a return to liquidity in Asia suggests continued volatility in the coming weeks.
