Hawkish move from the Fed! Warsh takes no prisoners in the fight against inflation. US500 at its lowest since August 3, and gold already below $4,300.

Federal Reserve Chairman Kevin Warsh delivered an exceptionally hawkish speech following a 25 bps rate hike. One thing is clear from his remarks: the fight against inflation is the absolute priority, and a strong economy gives the Fed full freedom to tighten policy.

• The rate hike decision comes at a time when data from the last 7 weeks since the previous meeting clearly showed a further strengthening of the economy.
• Long-term trends are key, not individual, noisy readings. Warsh noted that he was not waiting breathlessly for any single indicator, including CPI data.
• The issue of the academic concept of the neutral rate currently has no bearing on operational decisions made by the Fed.
• Credit flows remain solid, and the US economy is showing remarkable resilience.
• The labor market is in excellent condition – unemployment remains low, while job openings and hours worked are rising.
• During the two-day FOMC meeting, an atmosphere of optimism regarding the fundamental strength of the economy clearly dominated.
• Broad financial conditions can hardly be considered restrictive, a view widely shared by members of the Committee.
• Thanks to the economy's exceptional resilience, the central bank can fully focus on achieving price stability.
• The Fed's main goal is fighting inflation, which is simply too high and has remained at this level for far too long.
• Summer readings brought no improvement in the inflation picture, and too many price categories are rising above 3% on a 6- and 12-month basis (Warsh's new favorite inflation measure).
• Clear increases in commodity prices require special attention, and almost all developed economies are currently struggling with inflationary pressure.
• The Fed must be confident that core inflation is smoothly moving toward the 2% target; in the FOMC's view, this standard has not yet been met.
• Risks to inflation remain tilted to the upside, while risks to the labor market are balanced.
• Today's move is a sober decision to remove another dose of monetary accommodation.
• The central bank will do everything necessary to prevent price increases from spreading to other sectors.
• Warsh emphasized that he does not engage in "forward guidance" and does not intend to pre-commit to future steps.
• The Fed Chief revealed that he did not submit his own forecast for the dot plot and declined to comment on discussions with the President.

Warsh's decidedly hawkish rhetoric led investors to immediately raise their interest rate expectations. The market is currently pricing in nearly two rate hikes this year, even though only 4 Fed members see that many moves this year.

This triggered a massive wave of dollar strengthening and a sharp sell-off in riskier assets. EURUSD fell below 1.150, while the US500 index is testing the 7600 level, erasing nearly all of the intraday gains. Selling pressure also hit precious metals, with gold dropping below $4,300 per ounce.

Gold erases all gains and trades below $4,300. Source: XTB

US500 falls below 7600 and under the 50% retracement of the last upward impulse right before rollover due to the hawkish Fed. Source: XTB