Warsh Signals Hawkish Shift at Fed as Bitcoin Dips Below $80k

Federal Reserve Chair Kevin Warsh signaled that policymakers may have to take action if inflation doesn't meaningfully slow down and move towards the 2% target, as he warned at Jackson Hole. This was his first major address as Fed chair, where he reiterated that the central bank remains committed to its 2% inflation target, describing it as a 'firm and fixed target.'

The recent PCE and CPI readings were better than expected but did not demonstrate a meaningful improvement in underlying inflation trends, according to Warsh. He emphasized that financial conditions are not currently restrictive and described interest rates as the Fed's 'predominant tool' for achieving its mandate.

Markets responded by increasing expectations for a September rate hike, with the implied probability rising above 50% from around 36% before the speech, according to federal funds futures. Bitcoin slipped below $80,000 after Warsh's comments pushed short-term Treasury yields higher and reduced some of the recent risk appetite across financial markets.

The gold price dropped nearly 3% as traders raised expectations for a September rate increase following Warsh's remarks. Gold typically comes under pressure when interest rates rise because it does not generate a yield, and a stronger dollar also made gold more expensive for buyers using other currencies.