What Is Fed Chair Kevin Warsh Sensitive To? BlackRock Executive Has an Answer

Fed Chair Kevin Warsh is sensitive to AI, according to Jeffrey Rosenberg, a managing director at BlackRock. Rosenberg said Warsh linked tightening financial conditions to AI after the Fed held rates at 3.75% to 4% on Wednesday.

Minutes from the Fed’s June meeting flagged AI-driven demand as an inflation risk. Rosenberg says a blow to AI would instead be “primarily disinflationary,” a shift that reaches rate-sensitive assets like Bitcoin (BTC).

Why Do Interest Rates Now Follow the AI Trade?

Rosenberg said market rates stopped looking at oil and started looking at the AI trade. 

“…the market sort of sniffing out that AI is a macro event as much as it is a micro event,” Rosenberg said.

He said spending now leans on the wealth effect, where rising asset values lift consumption. That makes financial conditions the main channel for Fed policy, he added.

Recent market data fits his read. DataTrek co-founder Nick Colas says oil and bond yields moved together for about a decade before splitting in mid-September.

Fidelity’s Jurrien Timmer says the Goldman Sachs AI basket, which tracks AI-linked stocks, has fallen 22% since early June.

As that selloff deepened, the 10-year Treasury yield closed at 4.96% on October 22. That was its first close below 5% since September 22, per Treasury data cited by 24/7 Wall St.

Timmer says AI stocks and long-term Treasuries have lately moved in opposite directions, which could make bonds a hedge. Whether that hedge holds depends on the Fed’s next move. 

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Can a Fed Watching AI Still Deliver Another Hike?

Rosenberg read the slight steepening of the yield curve as a dovish hint. Still, he stopped short of calling the Fed put, the idea that policymakers cushion falling markets, alive and well.

However, Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in the 10-2 vote, favoring a hike.

Headline consumer prices rose 3.7% in the year to September, per Bureau of Labor Statistics (BLS) data. Core prices, which exclude food and energy, rose 2.6%.

That inflation keeps a hike in play. If inflation pushes long-term yields higher, the bond hedge weakens.

For Bitcoin, the risk runs through AI stocks as well as rates. The largest cryptocurrency has often traded alongside tech stocks. In June, a Big Tech and chip selloff dragged Bitcoin toward $62,000.

Ahead of Wednesday’s decision, BTC rose 1.54% in 24 hours to $80,837 as tech stocks rallied.

That link has not always held, as BTC traded more like gold than the Nasdaq in August. If the AI selloff resumes, that pattern could pressure BTC before any Fed relief arrives.

Rosenberg’s view adds a second step, since he says a blow to AI would pull inflation down. Lower inflation could ease the case for more hikes, which could support rate-sensitive assets like BTC.

Personal Consumption Expenditures (PCE) inflation data lands Thursday, followed by the December 8-9 Fed meeting. Both will show whether Treasury yields keep taking their cue from AI rather than oil.

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