Cryptocurrencies have been affected by macroeconomic developments lately. For this reason, investors’ eyes are especially on the statements of the US Federal Reserve (FED). Yesterday evening, the FED presented a semi-annual monetary policy report. The Fed says inflation is uncomfortably high and additional rate hikes are needed to contain it. Here are the details…
Will cryptocurrencies be affected by the FED’s report?
“The Committee has a strong commitment to returning inflation to its 2 percent target,” the Fed said in its semi-annual report to Congress on Friday. The country’s central bank said that “continued increases in the target range would be appropriate to achieve a sufficiently restrictive monetary policy stance.” The report, which provided lawmakers with an update on monetary policy and economic developments, came just days before Fed chairman Jerome Powell testified on Capitol Hill. Powell is scheduled to appear before the Senate Banking Committee on Tuesday and the House Financial Services Committee a day later.
Central bank governors are in the midst of the most aggressive campaign since the 1980s to crush stubbornly high inflation. Although the consumer price index has slowly fallen from its June high of 9.1 percent, it remains nearly three times higher than the pre-pandemic average. Officials voted in February to raise the benchmark interest rate by a quarter point to a range of 4.5% to 4.75%, signaling that “a few more” increases are on the table this year. This followed a half-point gain in the December meetings and four consecutive 75 basis-point moves before it.
The latest economic data was unexpected
The Fed’s rate-setting committee meets later this month. Markets expect the Fed to continue raising interest rates at a quarter-point pace, but different-than-expected economic data has come in in recent weeks. This includes January’s jobs report and disappointing inflation data pointing to the prevalence of high consumer prices. The US Department of Labor reported in February that the consumer price index rose 0.5% in January, the highest in three months. The annual inflation rate also surprised upwards with 6.4%.
This data has prompted some traders to re-examine their rate hike prospects for the year, and a growing number of investors now believe the Fed may raise rates higher than previously anticipated. About 33 percent of traders expect the Fed to raise the fed funds rate by another 75 basis points by the end of the year, while 64 percent expect rates to rise 50 basis points, according to data from CME Group’s FedWatch tool.
Fed officials acknowledged that rates may need to be higher than expected and stay higher for longer. st. Louis Fed President James Bullard said in February, “My general view is that it’s going to be a long battle against inflation and we should probably continue to show a determination to fight inflation as we head into 2023.”
Latest situation in Bitcoin and altcoins
As we reported on Kriptokoin.com, Bitcoin ended the week 4 percent lower as Silvergate’s “do not survive” warning fueled fears in the crypto money market. Continuing concerns about the Fed’s monetary policy path also affected risk appetite. As a result, experts say the Fed will likely raise the policy rate to a higher level than it anticipated late last year, given the still-warm economic data pointing to continued inflationary pressures.
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