Bitcoin, gold and stocks rise after Warsh's speech: this is what he said

The US central bank has decided to keep interest rates at the same level and Kevin Warsh's press conference has unleashed a lot in the financial markets. The chairman has just explained the decision, and that has been positively received by investors.

Bitcoin (BTC), Wall Street and especially gold are reacting positively and that is mainly because Warsh has expressed his confidence that his approach against inflation is starting to work.

“The overwhelming consensus is that the monetary medicine is starting to work,” Warsh indicated. By this he means a package of measures that he has introduced since taking office in May.

The first step was a firm promise about the inflation target of 2 percent. “And if you think we tolerate an inflation target somewhere in the middle, let us get you out of that delusion,” he clarified. This was followed by the interest rate increase in September, which was the first increase in more than three years.

Warsh deduces that the drug works from investors' expectations. Among other things, he looked at swaps, contracts with which investors hedge against future inflation.

Nevertheless, inflation itself has not yet fallen. Warsh acknowledged that prices have been above the 2% target for almost six years, and energy prices have risen again in recent weeks.

As a result of these statements, the two-year interest rate has dived into the bond market. In fifteen minutes it went down by about 1.50 percent and that simply means that the market is pricing in a less strict Fed. It follows the expectations for the Fed interest rate in the next two years.

As a result, we see green numbers in the markets. Bitcoin shot up 0.47 percent, the S&P500 0.33 percent and gold is the big winner with a plus of 0.78 percent.

For the next meeting in December, a large majority of the market is still betting on an interest rate increase.

Warsh also said that economic growth has strengthened and that the labour market is holding up well. This gives the Fed the space to focus fully on inflation.

Warsh saw that financial conditions, i.e. how easily and cheaply companies and households get money, have tightened since September.

Still, he doesn't want to call them tight. According to him, there is still enough money in circulation and the interest rate increase is slowing down the economy only to a limited extent.

Although geopolitical developments, and especially the Iran war, of course, contribute to the uncertainty, Warsh indicates that he will first gather more information for the next step.