Warsh’s hawkish Jackson Hole remarks flipped rate expectations and set up a near-term market test: inflation still looks uncontrolled, QT could return, and the Fed may be preparing to lean on the long end of the curve again. The video argues that even if QT reappears in late 2026 or early 2027, it may not end the Bitcoin cycle; instead it could trigger the kind of midterm-year stock and crypto correction that resets sentiment before a later move higher. The AI bull case is framed as still intact into next year, with IPO timing for Anthropic and OpenAI used as part of the base case for why the market may not top yet.
Kevin Warsh’s Jackson Hole speech was hawkish: inflation is not under control and policy is not clearly restrictive right now, triggering a short-term repricing in rate probabilities.
The Fed has QT as a second tool beyond rates, and Warsh’s long-running preference is to shrink the balance sheet rather than rely only on rate hikes.
Warsh previously said the Fed would let the long end of the yield curve do the work; Treasury Secretary Yellen then accelerated the bond buyback program, which also targets the long end.
The bond buyback program does not fix inflation’s causes and could itself be inflationary; markets tend to test government resolve when officials intervene to defend the long end.
QT is not expected to start in September or October; the earliest QT announcement on this view is December 2026, with early 2027 more realistic if it returns.
If the Fed raises rates, it may not want to announce QT at the same time; a renewed QT run could still leave rates lower than they otherwise would need to be.
Market-implied odds flipped from about 2/3 for no September change and 1/3 for a hike before Jackson Hole to almost 2/3 for a hike and 1/3 for unchanged now; another labor report and mid-September inflation print can still move that.
The market now leans to two hikes this year, while a move to 4.25 is not expected; 4.0 may be enough to steady the ship.
A 2027 QT restart could be part of the anti-inflation setup, but it probably would not coincide with continued rate hikes.
AI is still expected to carry the AI bull market into next year, with a correction possible in the back half of the midterm year; the main reason is that the market likely will not top before major IPOs finish.
Anthropic’s IPO is probably in the next month or two, while OpenAI’s IPO is probably not until 2027.
Midterm-year stock corrections often begin in August or September and only look obvious in October; 2014 topped the week of September 15th, 2018 the week of September 17th, and 2022 topped the week of August 15th before the post-Jackson Hole selloff into October.
A late-cycle hike could justify a 10% to 20% drop, similar to the 1997 pattern after the Fed raised rates again in March 1997 and the market fell about 10%.
The mid-90s sequence — cut rates from 6% to 5.25, hike back to 5.5, hold from March 1997 through August 1998, then raise again later — eventually killed the dot-com bubble after about 3 years.
If QT returns, BTC may still keep its bull market: the first part of the next 4-year cycle could happen during QT and the later part during QE, like 2019 before the pandemic pivot.
A September hike or similar move could briefly correct stocks and reset crypto sentiment in Q4 of the midterm year, after which the market could continue normally if the next business-cycle phase is still 1 to 2 years away.