According to a report by The Wall Street Journal, Federal Reserve officials are working on a 75 bps rate hike at the November 1-2 meeting. The Fed’s continued aggressive rate hikes are putting pressure on Bitcoin and gold. Therefore, the size of the rate hikes and how long they will last become important.
Bitcoin and gold investors watch the Fed closely
According to a report published by The Wall Street Journal, Federal Reserve officials are working to increase interest rates by 75 bps at their meeting on November 1-2. In the last three meetings, mostly in September, the Fed has increased the fed funds rate by 75 bps each time. Currently, the Federal Reserve’s benchmark interest rate stands between 3% and 3.25%. However, officials expect it to exceed 4% by the end of the year.
This hawkish stance of the Fed has put serious pressure on Bitcoin and other risk asset prices. It also shattered Bitcoin and gold’s dreams of a safe haven for inflation. Gold slid to $1,600 from its high above $2,000. The leading crypto Bitcoin, on the other hand, saw a drop from its all-time high of $ 69,000 to $ 17 thousand. Although it is currently struggling above $19,000, it faces the risk of slipping to the bottom at any moment. That’s why both gold and Bitcoin investors are watching the Fed.
At the next meeting, there are signs that the rate will rise to around 4.40% before the end of 2022. After that, this ratio is likely to increase further to 4.60% next year. The Fed made 75 bps increases, which it started in June, for the first time since 1994. The Federal Reserve is using interest rates to combat current inflation, which they aim to bring back to 2%. Joe Brusuelas, chief economist at LLP RSM US, said:
Job losses could rise well above 5.3 million to push inflation back to 2%. It could also result in an unemployment rate of 6.7% at the upper end of the range.
Divide among Fed officials regarding future escalation
Fed officials are split on future rate hikes. Cleveland Federal Reserve Chair Loretta Mester said the Fed will be in favor of 75 bps increases at both meetings to address inflation.
But officials are keen to minimize the effects of initiating an unusually sudden slowdown. On the other hand, some oppose this position as they think that thoughts will come very soon. According to them, those who are against lowering rates think that high inflation is eating away at the economy.
Federal Reserve Chairman Christopher Waller took a balanced stance among divided officials. Waller made a statement earlier this month. He noted that they will have a very thoughtful discussion about the pace of tightening at the next meeting. Currently, some point to a possible slowdown in increases in early 2023.
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