With Russia’s invasion of Ukraine, Bitcoin fell to $ 34,300, the lowest level of the last month. Actor and producer Joel Heyman said in a humorous tweet that he touted Putin as Fed chair that the March rate hike was canceled and QE would be continued. Hayman’s tweet actually reflects the expectation that the Fed may abandon its tightening policies due to geopolitical uncertainty and asset market instability.
However, experts do not expect such a move from the Fed. Matthew Dibb, COO and co-founder of Stack Funds, said:
“It’s hard to imagine the Fed completely backing down from its March rate hike plans. There is no doubt that inflationary pressures will increase commodity prices. Russia and Ukraine remain the largest exporters of various precious metals and agriculture.”
The main question, according to Dibb, is not whether the Fed will raise interest rates, but how much.
Brent oil has surpassed $100 for the first time since 2014, according to TradingView data. According to Goldman Sachs, conditions exist for a massive rise in commodities. Analyst and economist Alex Kruger says crude oil and food prices are likely to remain higher for an extended period of time. But Kruger says that crude oil and food do not represent core inflation, and the Fed may ignore the rise in their prices. Kruger also said that “it’s impossible to gauge the Fed’s response now, and they’ll get an idea once officials start talking about it.” Core inflation is widely touted as the best indicator of demand-side pressures and a more reliable indicator.
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Market commentators expect less rate hikes and a shallower tightening policy from the Fed, contrary to what was launched. Jeff Dorman, CIO of digital asset management firm Arca, told CoinDesk, “The rate hike will still happen… most likely 2-3 increments. However, the market’s 6-9 increase expectations are very unlikely to come true.
As of Wednesday, markets had priced in six quarter-point rate hikes for 2022. But with Putin declaring war on Ukraine, Fed funds futures data traders appear to be pricing in six rate hikes.
According to analysts, expectations of a shallow tightening policy and a focus on geopolitics from inflation may ease the Bitcoin and crypto market somewhat as the initial reaction to the Russia-Ukraine war begins to subside. Dorman also added:
“The market is already pricing in rate cuts in 2024, which suggests that rate hikes will have no impact because the market is already priced in reverse.”
Jarvis Labs economist Ben Lilly describes the Russia-Ukraine tension as a good distraction for the Fed:
“The focus on inflation concerns is decreasing. Also, uncertainty in geopolitics in general can reduce spending to some extent. This tension can actually give the Fed a reason for rising inflation.”
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