Waller held back; Williams stepped forward.
John Williams, the Fed’s No. 3, president of the New York Fed, and a permanent voting member, crushed the market’s last remaining hopes with one sentence last night: “Inflation is far too high ... We still have a lot of work to do to bring monetary policy back to an appropriate stance.”
Put it in plain English: Stop guessing whether there’ll be a rate hike in December. The question is how many hikes there’ll be.
The market has already voted with real money.
Interest rate futures are now pricing in 25-basis-point hikes in December, next January, and next March. Deutsche Bank is forecasting “three hikes in a row,” pushing the federal funds rate to 4.50%–4.75%. CME data puts the probability of a 25-basis-point hike in December at around 90%, with a 0% chance of no change.
Just a few weeks ago, the market was still pricing in rate cuts in 2027.
Core CPI rose 0.3% month over month in October, coming in above expectations for the third consecutive month. Headline CPI rose 0.4% month over month, also exceeding expectations. Goolsbee's exact words were that it was “uncomfortably close to the tipping point.” Hammack said monetary policy needed to shift to a “restrictive stance.”
The most devastating blow came from Waller.
The market used to classify him as a dove. He had previously said that if October inflation came in above expectations, a one-time 50-basis-point hike in December could be considered. Then the data actually came in hot.
Even the doves are starting to discuss 50 basis points.
But for crypto markets, even the shift in expectations alone is already painful enough.
Look at prices:
BTC fell below $70,000, hitting a low of around $67,470; ETH fell below $1,900. Over the past 24 hours, about $1.64 billion in crypto positions were liquidated, including around $916 million in BTC contracts and $289 million in ETH contracts.
This isn't just a technical pullback.
The dollar index is strengthening, rate expectations are rising, risk assets are under pressure, and leveraged longs are being flushed out en masse. Until recently, investors were betting on rate cuts bringing liquidity, and were willing to buy the future early. Now the market is worried that high rates will persist for longer, and investors are recalculating risk.
Expectations of rate cuts fuel bull markets; expectations of rate hikes can become a death warrant for leveraged positions.
But we shouldn't declare the crypto bull market over. What we really need to watch out for is this: if inflation remains stubborn and rate expectations keep moving higher, BTC will find it hard to remain immune on the strength of its own narrative alone.
Keep an eye on three things next:
First, inflation and employment data ahead of the December meeting will determine whether the Fed has reason to keep tightening.
Second, whether the dollar and Treasury yields continue to strengthen, which affects the cost of capital for global risk assets.
Third, whether BTC can regain its footing after falling below $70,000. If the rebound comes on weak volume and ETF outflows continue, the market may have to go through another round of deleveraging.
The cruelest thing about the market is that it won't wait for you to admit you were wrong before it starts falling.
Warsh stayed silent because he knew the words wouldn't be pleasant to hear. Williams spoke up because if he didn't, the market would meet an even uglier end.
When the Fed's centrists start describing inflation as having “a lot of work to do,” your job isn't to guess which meeting will bring a pause.
It's to accept one fact: the rate-hiking cycle will last far longer than you think. And your leverage may not survive until it's over.