LIVE: Bitcoin crashes to $75,000 as Federal Reserve hikes interest rates

Federal Reserve Chair Kevin Warsh said the central bank is paying close attention to artificial intelligence and how it could affect both spending and the economy’s ability to produce goods and services.

“We care much about the implications on the demand side of the economy and ultimately on the supply side of the economy. I care so much.”

He said the subject matters enough for the Fed to set up a dedicated group to study it, with findings expected before the year is over.

“I think it’s so important that we establish a task force that should report by the end of the year to help us think about the implications for our future policy conjuncture.”

Stocks finished lower after the Fed’s move and Kevin’s press conference. The Dow Jones Industrial Average dropped 631.21 points, or 1.21%, to 51,461.90, with Goldman Sachs (GS) among the biggest drags.

The S&P 500 lost 0.45% and closed at 7,551.81, while the Nasdaq Composite slipped 0.01% to 25,978.42. All three indexes had traded higher earlier in the session before the Fed announced its decision and Kevin addressed reporters.

Kevin was also asked whether getting inflation back under control would require the Fed to deliberately push economic growth below its normal pace and weaken the jobs market.

He said that is not what policymakers believe needs to happen.

“We believe that the unemployment rate is basically running consistent with full employment. I don’t believe that we need to do harm to the labor markets to achieve our objective.”

Federal Reserve Chair Kevin Warsh said the picture has changed noticeably since policymakers last met in July, with recent numbers showing the U.S. economy is holding up better than it was earlier in the summer.

“There’s been a pretty wide ranging set of data, including the labor markets, that the economy has strengthened. It’s a judgment that I have and the committee has.”

Kevin said that stronger backdrop did not change his concern about inflation. He said the summer numbers still failed to give him enough confidence that price pressures were easing in a meaningful way.

“My judgment some weeks ago was the inflation summer trends weren’t passing the test. I’ve seen very little information since that would make me reverse that decision. So I’ve stuck with it.”

He also said officials are now looking at the geopolitical backdrop differently than they were a few weeks ago.

“And our judgment about what is the most likely or least likely of the geopolitical situation has changed.”

Kevin said those three factors — firmer economic activity, inflation that has not cooled enough and a different geopolitical outlook — were behind the committee’s unanimous vote.

“All three of those things lend themselves to, a firm unanimous decision today.”

Kevin was also pressed on whether markets should see the rate increase as a test of the Fed’s independence, and he was asked when he last spoke with Trump.

“I don’t have anything for you on discussions with the president. I’m not a Wall Street newsletter.”

He said the central bank’s independence depends on keeping its focus strictly on the responsibilities Congress gave it instead of getting pulled into decisions that belong elsewhere in government.

“Part of the independence of the Federal Reserve is we stay in our lane.”

“Independence is a two-way street. We let people that do trade policy and fiscal policy stay in their lane too. That’s how we can stand up here and call them the way we see them.”

Kevin also pointed out that Fed decisions do not stop at the U.S. border. Changes in American monetary policy can affect financial conditions overseas, while decisions made by foreign central banks can also feed back into the U.S.

“When the Federal Reserve makes a policy choice, it matters not just to the U.S. economy, but it spills over to the rest of the world. To a lesser extent, that’s true for them too.”

He said overseas central banks that respond to higher inflation by raising their own rates can help cool price pressures at home, with those moves creating knock-on effects across economies.

“When foreign central banks make decisions where they’re confronted with higher prices and they choose consistent with their remit to raise rates, then they’re helping to quash inflation in their countries and there’s spillovers and spill backs in both directions.”

Kevin did not say what he expects other central banks to do at their next policy meetings.

Federal Reserve Chair Kevin Warsh was asked directly what he would say to Trump, who has repeatedly argued that rates should be coming down rather than going up.

“I’ve got nothing for you on a discussion with the president.”

Kevin then defended the Fed’s decision, saying the increase was the “right decision to deliver on the remit that Congress gave us to ensure stable prices.”

The White House took the opposite view. White House spokesman Kush Desai said the administration does not believe the Fed had a strong economic reason to raise rates and argued that the move will not fix what is currently driving inflation.

“Today’s rather unfortunate decision by the Federal Reserve to hike interest rates was not, from the administration’s point of view, backed by a particularly compelling economic case.”

Kush said the inflation that remains is coming from the energy market, especially the recent jump in oil prices tied to events in the Middle East, rather than from something higher borrowing costs can directly fix.

“To the extent that we still do have inflation, as the president and others have noted, it’s entirely driven by an energy supply shock, by what’s going on with oil prices in the Middle East. These are things that have nothing to do with with interest rates and are not affected really by higher interest rates.”

That came two days after Trump said the sharp rise in global diesel prices was “mostly caused by the Russia/Ukraine War, not Iran.”

Kush also argued that making money more expensive to borrow could slow the economic gains the administration says it has made.

“All higher interest rates are going to do right now is stymie the significant economic progress that the United States has made under this president.”

Kush said he had not personally spoken with Trump about the Fed’s decision. Trump then weighed in himself on Truth Social, again calling for rates to be cut with public jabs at yet another Fed chair he picked himself. Trump said:

“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”

Federal Reserve Chair Kevin Warsh opened his press conference by saying the U.S. economy has been looking stronger lately, even as inflation remains the bigger problem for the central bank.

“Our decision comes at a time when the American economy appears to be strengthening. New hiring, private-sector earnings, business capital investment – each of these markers has improved in recent months and is pointing in a good direction.”

Kevin said the employment side of the Fed’s job is in “good shape,” which leaves inflation as the main issue officials are trying to deal with.

“For more than five years, inflation has been running above target. So our predominant focus is on the price-stability side of our mandate. The plain fact is that inflation is too high and has been for too long.”

Asked whether smaller rate increases can really help when part of the inflation problem is coming from energy supply, Kevin said the Fed cannot directly control what individual goods cost.

“We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do and will do is ensure that any change in relative prices don’t broaden out, don’t have second and third order effects in the economy. That’s what we’re tasked to do, and that’s what we will do.”

Kevin described Wednesday’s rate increase as a “sober,” “serious,” and “responsible” decision, but he would not say what the Fed will do at its next meetings.

“I’m not going to prejudge any future decisions we make. I committed to a discipline, a set of principles. That’s what we did today.”

Kevin returned to inflation several times during the briefing, saying recent data still does not show enough improvement.

“Our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high, and has been for too long. This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

Kevin pointed to the latest CPI and PPI figures, saying too many areas are still showing increases above 3% when measured over both six-month and 12-month periods.

He also said the Federal Open Market Committee has a “vital and straightforward purpose: full employment and price stability, and a thriving American economy that sets the standard for the world.”

The Federal Reserve’s latest projections show policymakers are still leaning toward one more rate increase before 2026 ends, followed by no change through 2027.

Back in June, officials had expected one quarter-point move higher this year and then a quarter-point reduction next year.

Further out, the new outlook has borrowing costs starting to come down in 2028. By 2029, officials see the federal funds rate sitting somewhere between 3.5% and 3.75%.

Their inflation estimates also moved higher. Policymakers now expect price pressures to run hotter than they previously thought, both this year and over the years ahead.

A total of 18 out of 19 policymakers submitted interest-rate projections. Federal Reserve Chair Kevin Warsh appears to have skipped that part again, just as Kevin did in June. Of those who gave a view, 16 expect another hike this year, while two think rates should stay where they are.

Those forecasts could still change as the Fed reviews how it handles monetary policy more broadly.

That review includes the way officials communicate decisions and which economic indicators carry the most weight when they decide where rates should go.

Treasury yields trimmed some of their earlier decline after the Fed announcement. The 10-year yield was down 4.3 basis points at 4.953%, while the 30-year yield fell 5 basis points to 5.313%.

The difference between 2-year and 10-year Treasury yields, a closely followed gauge of how markets are reading the economy, stood at a positive 30.9 basis points.

The 2-year yield, which tends to react closely to expectations around Fed policy, was down 2.1 basis points at 4.644%.

U.S. stocks were mostly higher on Wednesday after the Federal Reserve raised rates for the first time in more than three years as it tried to get inflation under control.

The S&P 500 gained 0.3%, while the Nasdaq Composite rose 0.7%. The Dow Jones Industrial Average moved the other way, losing 44 points, or 0.1%.

Oil stayed above $100 a barrel, even after pulling back from its recent highs. Brent crude fell 3% to about $105, while West Texas Intermediate dropped 3% to roughly $102.

Crypto was still under pressure. Bitcoin traded at $76,018.70, down 0.78%, with a 0.0076% funding rate.

Open interest stood at $74.83 billion, down 2.10%, while market value was $1.52 trillion and trading volume reached $51.88 billion. Its other tracked moves were 0.00% and -0.59%, with $167.22 million in liquidations.

Ether was at $2,408.83, down 0.76%, with funding at 0.0054%. Open interest came in at $56.26 billion, down 11.48%. Market value stood at $293.54 billion, volume was $31.25 billion, the other tracked changes were +0.50% and -2.56%, and liquidations reached $150.50 million.

Solana traded at $98.24, down 1.20%, while XRP fell 7.76% to $1.281. Solana had $7.84 billion in open interest, up 2.72%, a $57.61 billion market value and $5.82 billion in volume. XRP showed $6.99 billion in open interest, up 6.76%, an $80.49 billion market value and $2.83 billion in volume.

Some tokens were moving sharply higher. HYPE climbed 3.36% to $79.926, while ZEC jumped 18.41% to $1,337.77.

HYPE open interest rose 21.67% to $2.98 billion, while ZEC open interest surged 78.41% to $9.48 billion. ZEC also showed gains of 8.03% and 45.51% across the other tracked periods, with $52.80 million in liquidations.

The Federal Reserve delivered the move markets had been expecting, raising its main policy rate by 25 basis points. That puts the federal funds target at 3.75% to 4%.

The central bank also signaled that another increase before the end of the year remains possible. Inflation is still running too hot for policymakers, and the latest jump in oil prices has added another source of pressure.

Once the Fed starts pushing borrowing costs higher, it has historically tended to follow with more than one increase rather than stopping after the first move.

The decision passed with a 12-0 vote at the Federal Open Market Committee. Policymakers also said they will continue keeping enough liquidity in the banking system while rates move higher.

The Fed described the U.S. economy as still growing at a healthy pace. Officials said geopolitical events have made the outlook harder to read, but consumer and business spending has held up, productivity has been strong and companies are still putting substantial money into investment.

The labor market has also stayed relatively steady. Employment growth has roughly matched growth in the available workforce, while the unemployment rate has barely moved.

Inflation, however, is still above where the Fed wants it. Policymakers said the latest rate increase is meant to bring inflation back toward the central bank’s 2% target more quickly, with restoring stable prices still the main focus.

The European Central Bank lifted borrowing costs last week for the second time this year, responding to another inflation flare-up tied to expensive energy.

ECB President Christine Lagarde called the decision a “no-brainer” and said the path back to the bank’s 2% inflation goal, currently expected by the end of 2027, may take even longer.

“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. We believe inflation will be longer lasting than we had anticipated.”

Over in the U.S., investors are now much more convinced that the Federal Reserve is preparing to raise rates too.

Just a month ago, markets put the chance of that happening at only 36%, with traders betting that softer price data and Fed Chair Kevin Warsh’s hesitation to lock the central bank into a tougher policy stance would keep another increase off the table.

Kevin’s comments at the Fed’s yearly gathering in Jackson Hole, Wyoming, started changing that view. Since then, another batch of uncomfortable inflation numbers and a stronger labor market have given traders more reason to expect higher rates.

Oil has made that problem even harder for the Fed. Crude has moved back above $100 a barrel as the conflict involving Iran pushes energy costs higher, adding another source of price pressure just as the central bank decides what to do next.

Morgan Stanley has now changed its own call as well. The bank’s economists said Monday that they no longer expect rates to stay unchanged through the rest of the year and are instead looking for two increases.

Their new forecast points to Kevin’s recent comments, the renewed rise in oil, inflation linked to the rapid buildout of artificial intelligence, and the broader market move toward expecting tighter monetary policy.

Morgan Stanley now sees one rate increase this week and another in December.

Bitcoin led a wider crypto selloff on Tuesday after the U.S. Senate failed to move the CLARITY Act forward, taking away one of the biggest near-term policy developments the industry had been watching while markets were already getting nervous about higher interest rates.

Bitcoin fell as much as 5% to $76,110, extending losses that had started before the Senate vote. Ether dropped more than 8.3% at one point, while some smaller cryptocurrencies fell even harder. For both Bitcoin and Ether, it was their biggest decline since June.

The procedural vote on the CLARITY Act ended with 49 senators in favor and 50 against. The bill needed 60 votes to advance, leaving it 11 votes short and putting efforts to pass U.S. crypto market structure legislation this year in serious doubt.

That happened even after both sides had made major compromises. U.S. President Donald Trump agreed over the weekend to ethics rules he had previously resisted.

Those provisions would require federal officials and their spouses to either sell significant financial stakes in crypto issuers or move those holdings into a blind trust. State attorneys general would also have a role in enforcing the restrictions.

According to Republican negotiators, the end product of the bill contained more than 120 demands from the Democrats.

The bill was more than 600 pages long, indicating just how much negotiating had already taken place before the vote in the Senate failed.

Outside crypto, U.S. stock futures were slightly higher early Wednesday as investors waited for the Federal Reserve’s interest rate decision. S&P 500 futures rose 0.22%, Nasdaq-100 futures gained 0.3%, and Dow futures added 113 points, or 0.2%.

Markets are heavily expecting another rate increase. Futures were pricing in a 92% chance of a quarter-point hike Wednesday, while the odds of another quarter-point increase stood at 45% for October and 30% for December. The Fed’s current target range is 3.5% to 3.75%.

Asian stocks were mixed. Japan’s Nikkei 225 fell 0.34%, while the Topix rose 0.7%. Kospi of South Korea climbed by 0.12% while Kosdaq of South Korea fell by 1.05%.

S&P/ASX 200 of Australia gained 0.24%. Hang Seng of Hong Kong dropped by 0.18%, whereas China’s CSI 300 fell by 0.42%.

Oil was also adding to inflation concerns. West Texas Intermediate jumped 4.4% to $105.83 a barrel, its highest closing level since May 19, after Saudi Arabia reportedly cancelled some shipments following drone attacks on a major export pipeline. Brent crude rose 2.9% to $108.75.

Treasury yields have climbed alongside expectations that prices could stay high. The 10-year Treasury yield was slightly above 5%, while the 30-year yield reached 5.369%.