The minutes from the Federal Reserve's January meeting showed a surprisingly hawkish committee. Several members openly discussed interest rate hikes. This creates tensions and potential policy conflicts when Kevin Warsh becomes the new chairman this summer.
The Fed's strict stance may limit Warsh even before he starts, increasing pressure on both monetary policy and the crypto market.
Committee becomes stricter just before leadership change
The FOMC voted on January 28 with a 10-2 to keep the interest rate between 3.5%-3.75%. Governors Christopher Waller and Stephen Miran disagreed. They preferred a quarter-point reduction due to risks seen in the labor market.
However, the rest of the committee thought differently. Several participants warned that further easing, while inflation is still high, could signal that the 2% target is considered less important. The majority wanted to hold rates steady for now. According to them, it must first be clearly shown that the decrease in inflation is genuinely underway before they will consider cutting again.
Notably, several committee members wanted possible 'increases' in interest rates to be mentioned in the statement following the meeting. This directly referred to potential rate hikes.
Powell out, Warsh in: and a policy clash is looming
Chairman Jerome Powell's term ends in May. He has two more meetings to go. Trump announced on January 30 that former Fed governor Warsh would replace him.
Warsh has said before that lower interest rates are better. This aligns with Trump's repeated calls to make borrowing cheaper. The White House said Wednesday that recent figures show that inflation is 'calm and stable.'
But the strict majority in the committee may not cooperate. The interest rate is determined by 12 voting members. Only a few are cautiously inclined. The rest see the risk of inflation as the most important.
Analysts say that this strict stance from the committee could make it harder for Warsh to be approved and that he will have little room to quickly steer towards rate cuts.
If Warsh is confirmed, his first meeting as chairman will be in June. Futures traders expect the next cut around that time as well. However, the Fed's preferred inflation gauge—the PCE Price Index—is likely to accelerate again in the coming months. As a result, cuts may take longer to materialize.
Asian liquidity is returning: the wave of selling is increasing
The Bitcoin price started to decline shortly after the minutes were made public during the afternoon trading in the US. The price dropped from about $68,300 to below $66,500 in the early morning hours in Asia. This meant a decline of 1.6% in 24 hours.
The timing was important. Asian traders had just returned from the Lunar New Year celebration. Due to the increasing trading volume, the price dropped even further. Rising tensions between the US and Iran also played a role. The oil price rose by more than 4%, causing investors to become even less inclined to take risks, further weakening the cryptocurrency markets.
Coinbase CEO Brian Armstrong said that the decline is primarily psychological, not fundamental. He indicated that the exchange is buying back its own shares and purchasing additional Bitcoin at lower prices.
What comes next
The next Fed meeting is on March 17-18. A cut there is effectively ruled out. The market is now looking to June as the next possible opportunity.
But the real question is more than just timing. Can Warsh convince a deeply divided committee to lower rates while inflation remains stubbornly high? The strict majority has made its opinion clear. Changing that will require more than just a new chairman.
For Bitcoin, the macro picture remains challenging. The combination of a strict Fed, a difficult power transition, and returning Asian liquidity is likely to lead to sustained volatility in the coming weeks.
