Following former President Donald Trump’s announcement of the next Federal Reserve chair, the cryptocurrency market saw sharp declines. Bitcoin, in particular, plunged toward the $56,000 level before staging a swift recovery, yet it remains far from a safe zone. The big questions looming: Is Kevin Warsh truly hawkish? What do the recent employment data revisions reveal about the direction of Fed policy in 2026? And crucially, how will crypto assets be affected?
Unpacking Employment Data and the Fed’s Dilemma
At the end of last year, the U.S. unemployment rate hit its highest point in four years, accompanied by major downward revisions to nonfarm payroll figures. Alarmed by mounting labor market signals, the Fed responded with three consecutive rate cuts. But robust December numbers, published in January, led the central bank to pause its rate-cutting cycle.
Just this past week, new employment data for January appeared solid at first glance. However, a historic employment revision—easily overlooked by many—caught the attention of analysts like TKL. The standout finding: the labor market may not be as strong as the headline numbers suggest, raising speculation that the Fed could resume rate cuts as soon as June, even before Warsh formally takes the helm.
The United States revised its 2025 employment numbers downward by 1,029,000 jobs—the biggest annual revision in at least twenty years.
This followed negative revisions of 818,000 jobs in 2024 and 306,000 in 2023, totaling 2,153,000 jobs revised away from initial reports over the last three years.
Since 2019, 2.5 million jobs have been erased from official figures, with negative revisions in six of the past seven years. For comparison, the total downward revisions during the 2009–2010 period were approximately 1.2 million jobs.
These massive revisions suggest that previous “stronger-than-expected” job numbers were likely inflated. The Federal Reserve will have to take such adjustments seriously as it crafts future monetary policy.
Kevin Warsh: Policy Outlook and Crypto Market Implications
Earlier, we established that the employment recovery may not be as robust as official data suggests. Now the spotlight turns to Kevin Warsh, the Federal Reserve chair nominee. Recent inflation readings hovered just above the Fed’s 2% target, and if Friday’s Personal Consumption Expenditures (PCE) index lands below 2.8%, it could create additional room for rate cuts.
Yet all eyes are on Warsh—a figure about to take command in May—whose past positions and economic views are widely seen as skeptical of monetary expansion. Still, some market watchers dismiss concerns about an overly hawkish stance. E507, summarizing the views of Palinuro Capital’s founder, framed the debate as follows:
I have to laugh when people label Warsh as a “hawk” based on what he did 10–15 years ago. It’s as if someone looked at my old photos with a full head of hair and assumed it never changed. (There’s even one still on LinkedIn for nostalgia!)
Jokes aside, I’ve listened to hours of Warsh’s recent interviews, and here are the key market-relevant takeaways in his own words:
He sees inflation as a policy choice and links money printing to inflation (citing Friedman—which is usually correct);
He believes the Fed should support the banking system but withdraw once stability is restored—this is broadly reasonable;
He wrongly attributes most inflation to coordinated money creation by both the Fed and government; in reality, deficits primarily drive inflation, and QE mainly creates bank reserves;
Warsh claims the Fed’s expanding balance sheet “crowds out” the private sector, but that’s inaccurate—the private sector uses deposits, and nobody’s being squeezed out;
Bottom line: Warsh (not alone in this, by the way) fundamentally misunderstands certain aspects of money creation. Even so, these misunderstandings still shape markets: a focus on balance sheet reduction and the “AI-driven productivity boom” could justify rate cuts; falling short-term rates mean a weaker dollar; adding stress to the repo market through balance sheet shrinkage, combined with early rate cuts and discarding forward guidance, would increase uncertainty and steepen the yield curve.
There’s a critical risk: if Warsh aggressively trims the balance sheet, the repo market could spiral. Bank reserves as a percentage of nominal GDP are nearing a dangerous 8–9%. The last time reserves slipped past this level, we got the 2019 repo crisis. Why? Because liquidity is unevenly distributed among banks. When it gets scarce, small banks’ liquidity “goes out for coffee and never returns.” Waller first highlighted this threshold, and the Fed itself restarted bond purchases in December 2025 to mitigate such risks. So Warsh convincing the team to aggressively shrink the balance sheet further is unlikely.
Warsh may want to combine balance sheet reduction with the “AI boom” narrative to justify rate cuts. He probably won’t fully succeed, and the Fed will likely tilt dovish—no surprise there. The mid-term outlook: global economies stay expansionary on fiscal policy; the Fed turns dovish; bond yields and the dollar drift sideways or lower; and risk assets, like commodities and stocks, maintain momentum.
In practical terms, even if quantitative easing (QE) resumes slowly, quantitative tightening (QT) is unlikely under Warsh. Fears surrounding his policies are more myth than reality. This scenario could signal a favorable environment for risk assets—such as cryptocurrencies—especially in the second half of 2026. Of course, this trend isn’t guaranteed. Rising geopolitical tension with Iran, volatility in global tariffs, midterm political upheavals—including any speculation about Trump being ousted—and countless unforeseen events could all derail the crypto market’s momentum.
