Warsh's First Shot: How the Fed's Hike Is Repricing Crypto Markets

Yesterday, the Federal Open Market Committee decided to raise the target range for the federal funds rate by 25 basis points, to 3.75%-4.00%. The vote was unanimous, and Kevin Warsh didn't blink. This rate hike was the first by the central bank since July 2023 and Warsh's first policy action as chief.

Sixteen of the 18 participants were expected to go on another excursion before the year ended, as the dot map shows.

Crypto markets didn't see the hike as a signal; CME FedWatch data had priced in about 92% odds of a 25 bps move before the decision.

Warsh's remarks and his aggressive posture were the signal.

"I would struggle to describe broad financial conditions as restrictive," Warsh told reporters. "So we took back one dose of accommodation."

Translation: the Fed believes the policy rate still isn't high enough.

Crypto's Pricing Logic Is Being Rewritten

The markets took note. Respondents to the decision are bracing for a 75 basis point cumulative tightening by mid-2027, according to interest rate swaps, which is more aggressive than the median projection in the Fed's dot plot.

A flatter yield curve, with two-year Treasury yields surging to 4.74% and longer-term yields increasing at a slower rate, sends a clear signal that the market expects Warsh to tackle inflation head-on, regardless of the cost in terms of tighter financial regulations.