Bitcoin’s recovery from below $65,000 to above $81,000 has encountered its first major macroeconomic setback after Federal Reserve Chair Kevin Warsh delivered a hawkish message at Jackson Hole on Friday. The key question now is whether the prospect of higher interest rates and rising U.S. Treasury yields could undermine the cryptocurrency market’s sharp rebound.
Bitcoin ($BTC) held relatively steady during Warsh’s speech, but fell by $3,000 within hours of its conclusion, dropping below $77,000 for the first time in nearly a week. The sell-off spread across financial markets, weighing on stocks, precious metals and other risk-sensitive assets.
Why Warsh’s Jackson Hole Speech Hurt Bitcoin
Warsh did not explicitly say that the Federal Reserve is seriously considering raising interest rates, but his message was clear. Inflation remains elevated, the U.S. economy remains strong, and the central bank cannot simply declare victory. The Fed’s preferred personal consumption expenditures (PCE) inflation gauge is currently at 3.7% year over year, while its six-month annualized rate is even higher at 4.1%. Both measures remain well above the Fed’s target.
Warsh emphasized that the Fed’s 2% inflation objective is “firm and fixed” and argued that price stability will not restore itself without further action from the central bank.
He also played down some of the summer’s more encouraging inflation data, including the June figures, saying they had not convinced him or his colleagues that the underlying trend had improved substantially. Until the Fed can reassure markets that inflation is moving toward 2% “clearly and at sufficient speed,” policymakers will continue to “have work to do,” he added.
Rate-Hike Expectations Rise as Bitcoin Falls
Before Warsh’s speech, traders had assigned a one-third chance to an interest-rate increase in September. Those odds moved toward 60% after the speech, based on market pricing cited by Reuters. U.S. Treasury yields climbed again, while the dollar strengthened sharply after weakening the previous week.
That is almost the opposite of the macroeconomic backdrop that helped Bitcoin surge 10 days earlier. The shift may explain why BTC fell from a recent peak above $80,000 to below $77,000 within hours, pulling most altcoins lower as well.
Warsh also highlighted business investment growth of roughly 9% annually and a 20% rise in the S&P 500. Unemployment remained around 4%, while credit conditions were relatively easy. In practical terms, the economy is not currently giving the central bank an obvious reason to accept inflation above its target.
Higher expected policy rates generally push Treasury yields higher, increasing the returns investors can earn from assets viewed as considerably safer. A more hawkish Federal Reserve also tends to support the U.S. dollar and tighten broader financial conditions. Historically, that combination has been unfavorable for Bitcoin and more speculative altcoins.
Treasury Support Conflicts With the Fed’s Inflation Fight
Treasury Secretary Scott Bessent’s recent intervention in the bond market helped drive long-term yields lower, at least temporarily, and contributed to Bitcoin’s major rally. However, Warsh reminded investors that the Federal Reserve has a different mandate.
The Treasury may want to reduce borrowing costs and improve market liquidity, but the central bank must continue addressing inflation that remains above its target.
As a result, markets remain caught between two powerful forces: Treasury efforts to support financial conditions and a Federal Reserve that may need to keep monetary policy tighter for longer than investors had expected.
Source: cryptonews.net