Fed Chair Kevin Warsh's First Jackson Hole Speech Sends Bitcoin Lower, Rate Odds Higher
Kevin Warsh gave his first Jackson Hole address as Federal Reserve chair on Friday, and Bitcoin reacted before Wall Street figured out what had happened.
WHAT WARSH ACTUALLY SAID
Warsh took the stage at the Kansas City Fed's annual symposium in Wyoming and delivered exactly what he has delivered since taking the job in May: no forward guidance, no reaction function, just a framework. He cited benefits from artificial intelligence and said business and consumer spending has held up well, while acknowledging a slowdown in hiring that he attributed to a flattening labor supply. On inflation, he did not pretend things were fixed. "While this summer's inflation readings were better than expected, they do not tell me that underlying trends have meaningfully improved," Warsh said.
Warsh said he was impressed with the economy's overall strength but is concerned by signs that underlying inflation trends have not improved, and stopped well short of clearly signaling a rate increase at the Fed's next meeting. "I stand here today committed to a discipline, not to a decision," he told the room of policymakers, economists and media.
WHY THIS SPEECH MATTERED SO MUCH
Warsh has drawn repeated criticism for refusing to spell out his reaction function, meaning the economic circumstances under which the Fed would move rates in either direction, and investors saw Friday's address as his clearest opening yet to fill that void. Warsh has been chairman since May and had held just one FOMC meeting before this, at which he kept the benchmark federal funds rate steady at a target range of 3.5 percent to 3.75 percent.
The core inflation numbers gave him plenty to point to. The Fed's preferred inflation gauge, the PCE price index, is running at 3.7 percent annually, nearly double the Fed's 2 percent target.
BITCOIN MOVED FIRST
On the show, the hosts flagged something worth watching: Bitcoin dipped into the red almost exactly when Warsh began speaking at 10 a.m. Eastern, while equities briefly ticked higher before rolling over roughly an hour later once the market finished digesting the tone. It fits a pattern the show has pointed to before: Bitcoin trades around the clock and tends to price in a macro shift before slower-moving equity markets catch up. Whether that read holds up, only the next few sessions will show.
THE ODDS MOVED FAST
Heading into the speech, CME FedWatch data showed traders had cut the odds of a September hike to 38.4 percent from 82 percent a month earlier, with the rest betting on no change at all. That changed within hours of Warsh finishing. Traders raised the probability for a rate hike at the September policy meeting to 55.7 percent, about 20 percentage points higher than a day earlier, according to the CME Group's FedWatch tool. Separately, traders on prediction market Kalshi moved to 48 percent odds of a 25 basis point hike, up from odds near 70 percent for no change before the speech.
The Fed's rate decision lands on September 16. Warsh gave the market a discipline, not a decision, and the market spent Friday afternoon pricing that discipline as more hawkish than it expected.
This story comes from the Simply Bitcoin Live show. Watch the full episode.
