The Fed's January Minutes Drop a Hawkish Bombshell
The Federal Reserve released minutes from its January 27-28 meeting on February 18, 2026, and the contents caught markets off guard. While the Federal Open Market Committee voted 10-2 to hold the federal funds rate steady at 3.5% to 3.75%, as of the release several officials indicated that "upward adjustments to interest rates could be appropriate if inflation remains at above-target levels," according to the minutes.
Bitcoin reacted immediately. The largest cryptocurrency by market cap fell 2.05% to $66,250 as risk assets repriced around the hawkish surprise. The U.S. Dollar Index climbed 0.60% to 97.74, its highest level in over a week. Gold, playing its traditional safe-haven role, surged 2.18% to $4,983 per ounce. The 10-year Treasury yield ticked up to 4.09%.
The two dissenting votes came from Governors Christopher Waller and Stephen Miran, who preferred a quarter-point reduction. They argued the labor market remained vulnerable and warranted continued monetary support. Their dissent underscores just how wide the gap has become inside the committee.
A 10-2 Split That Tells Two Very Different Stories
The headline number, 10-2 in favor of holding, masks a far more complex debate. On one side, several participants wanted the post-meeting statement to reflect "a two-sided description of the Committee's future interest rate decisions." That language is Fed-speak for keeping rate hikes explicitly on the table, not just pausing cuts.
On the other, Waller and Miran pushed for an immediate quarter-point reduction. The gap between "we might need to raise rates" and "we should be cutting right now" is enormous by Fed standards. In typical FOMC fashion, disagreements are measured in basis points and careful phrasing. This time, the philosophical divide is visible from orbit.
The CNBC analysis noted that most participants "cautioned that progress toward the Committee's 2 percent objective might be slower and more uneven than generally expected." Several officials judged "the risk of inflation running persistently above the Committee's objective was meaningful."
That word, "meaningful," is doing heavy lifting. The Fed rarely attaches weight to upside inflation risk unless the data genuinely worries them.
Why Inflation Remains the Fed's Unsolved Problem
The January CPI print showed inflation still hovering above the 2% target that the Fed has chased since 2022. Manufacturing production rose 0.6% month-over-month in January, beating the 0.2% forecast. Building permits jumped 4.3%, well above the expected decline of 3.7%. Durable goods orders fell 1.4%, but that was far better than the projected 3.4% drop.
In other words, the economy is running hotter than the models predicted. Strong production, resilient housing, and better-than-expected durable goods all point to an economy that does not need rate cuts, and may in fact need tighter policy to cool demand.
This is the dilemma the Fed has been stuck in since late 2025. The labor market has softened enough to make Waller and Miran nervous, but core inflation refuses to cooperate with the 2% target. Every month that inflation stays elevated, the rate-hike camp gains more ammunition.
The Bloomberg report highlighted that the minutes fell short of suggesting a majority favored rate increases. But the mere fact that "several" officials floated the possibility represents a significant shift in tone from the December minutes, where the debate centered entirely on the pace and timing of cuts.
What This Means for Bitcoin and Crypto Markets
Bitcoin's slide below $66,500 after the minutes release reflects a market that had been pricing in at least one more cut in 2026. CME FedWatch data still shows markets leaning toward eventual easing, but the probability of a rate hike scenario has crept from near-zero to a non-trivial possibility.
For crypto, the transmission mechanism is straightforward. Higher rates strengthen the dollar, which historically pressures Bitcoin. They increase the opportunity cost of holding non-yielding assets. And they tighten financial conditions across the board, reducing the liquidity that fuels speculative rallies.
The S&P 500 initially rallied 1% during morning trading on February 18, but pared gains to just 0.48% (closing around 6,887) after the 2:00 PM ET minutes release. Bitcoin, being more sensitive to liquidity expectations than equities, took a harder hit.
The practical impact extends beyond price. Users holding crypto through staking platforms may see yield compression if the rate environment tightens further. Stablecoin yields on platforms like Nexo and lending protocols are influenced by broader interest rate conditions. When the risk-free rate on Treasuries rises, DeFi yields need to compete, which can either push protocols to offer more or see capital rotate out.
For anyone using crypto-backed loans, a rate-hike environment means borrowing costs could increase. Coinbase recently expanded its crypto-backed lending to support XRP, DOGE, ADA, and LTC collateral, but the cost of those loans tracks broader rate expectations.
The Macro Chessboard: Dollar Strength, Gold Records, and Risk Repricing
The broader market reaction tells a consistent story: safety first. The DXY's jump to 97.74 marks its highest level in over a week and continues a trend of dollar strengthening against a basket of major currencies.
Gold at $4,983 is inching toward the psychologically significant $5,000 mark, driven by a combination of safe-haven demand, central bank buying, and geopolitical tensions. The fact that both the dollar and gold rallied simultaneously is unusual and suggests genuine risk aversion rather than a simple dollar-denominated trade.
Treasury yields rising to 4.09% on the 10-year reinforce the bond market's message: rate cuts are not imminent, and the upside risks to rates are real. For context, the 10-year was trading near 3.80% as recently as January, when markets still believed the Fed was on a glide path to 3.00%.
This matters for crypto infrastructure companies racing toward public markets. Kraken's $20 billion IPO ambitions and the broader wave of crypto firms seeking listings depend on favorable capital markets conditions. A tighter rate environment compresses multiples and makes IPO windows narrower.
The BofA fund manager survey from earlier this month showed record dollar bearishness among institutional investors, but the Fed minutes just handed the dollar bulls fresh ammunition. If the consensus dollar-short trade unwinds, Bitcoin's recent positive correlation with the dollar could flip back to its traditional inverse relationship, adding further downside pressure.
FAQ
Did the Fed actually raise rates? No. The FOMC voted 10-2 to hold the federal funds rate steady at 3.5% to 3.75%. The hawkish surprise is that several officials said they would support rate hikes if inflation persists above the 2% target, a scenario that was barely discussed in previous meetings.
Who were the two dissenters and what did they want? Governors Christopher Waller and Stephen Miran voted for a quarter-point rate cut, arguing the labor market needed more support. Their dissent highlights the wide philosophical split within the committee.
How far did Bitcoin fall after the minutes? Bitcoin dropped approximately 2.05% to around $66,250 during the U.S. afternoon session on February 18, with continued weakness into Asian trading hours on February 19, slipping below $66,500.
When is the next Fed meeting? The next FOMC meeting is scheduled for March 18, 2026. Markets will be watching closely for any shift in the statement language that reflects the rate-hike debate revealed in these minutes.
Does a rate hike actually hurt crypto? Historically, yes. Higher rates strengthen the dollar, increase the opportunity cost of holding non-yielding assets like Bitcoin, and tighten liquidity across financial markets. However, the relationship is not absolute, and factors like institutional adoption, ETF flows, and on-chain dynamics also drive prices.
Overview
The January FOMC minutes revealed a Federal Reserve far more divided than markets expected. While the 10-2 hold decision was anticipated, the explicit discussion of rate hikes by several officials marks a significant hawkish shift. Bitcoin fell 2% to $66,250, the dollar surged to a one-week high at 97.74, gold touched $4,983, and the 10-year Treasury yield climbed to 4.09%. The two dissenters, Waller and Miran, wanting a cut while colleagues floated hikes, illustrate a committee pulled in opposite directions by sticky inflation and a cooling labor market. With the next FOMC meeting on March 18, every inflation print between now and then carries outsized weight for crypto markets, stablecoin yields, and the broader risk landscape.
Recommended Reading
- Fund Managers Are the Most Bearish on the Dollar Since 2012, but Bitcoin's New Correlation Flips the Old Playbook
- Bitcoin Has Lost Half Its Value Since October and VanEck Says Five Forces Are to Blame
- Arthur Hayes Says Bitcoin Will Be the First Asset to Signal an AI-Driven Financial Crisis
