On Wednesday, the Federal Reserve stepped up its battle against high inflation by raising its benchmark interest rate by three-quarters of a point, the highest increase since 1994. The Fed also hinted at future rate increases as it works to reduce inflation without triggering a recession.
But reality hit a day later.
In response to investors’ realization that the economy would likely be affected by higher interest rates and a greater risk of a recession as a result of the Fed’s harder attitude, stocks fell on Thursday.
Austin from Altcoin Daily is analyzing the general crypto market, the FOMC meeting, and its implications on the crypto bear market, as well as what to expect from the July Fed meeting.
BTC Wobbles But Regains Quick
BTC dropped to $20K after the news of the hike of three-quarters of a percentage point. Soon after Fed Chair Jerome Powell’s announcement, the price started to rise again.
Jerome Powell made it evident that rates would be rapidly raised in the future. All eyes are on the Fed meeting in July after the Fed announced a 75 bps rise, their most aggressive increase in history. There is a strong indication that inflation will decrease and eventually reach 2%.
The Fed believes that continuing rate hikes are reasonable. However, the incoming data and changing economic projections will continue to influence how quickly such adjustments occur.
“It’s evident that today’s 75 bps increase is exceptionally high, and I don’t anticipate seeing many increases this size in the future. So, according to the current situation, the most likely rise at our next meeting is either a 50 bps or a 75 bps point increase”.
Jerome cautioned that despite the swift hike, there would probably be another substantial increase of either 50 or 75 basis points next month. This suggests that market suppression will probably continue in the future and that it is probably their only chance to avert the skyrocketing inflation this year.
The Youtuber pointed out another essential: how near we are to reducing that inflation?
Richard Fisher Warns That the Fed Still Has Work to Do Because Inflation Has “Metastasized”
Richard Fisher, a former president of the Dallas Federal Reserve, has been having discussions like this for years, and the analyst likes his point of view. He claims that “inflation isn’t going anywhere anytime soon” because “he is talking to so many private companies. who are saying they’re not budging under prices because they can’t afford it right now,”
Fisher continued by saying that he does not believe the Fed’s four percent interest rate increase will be sufficient to curb inflation. Instead, according to his forecasts, it will likely need to move further in the upcoming months.
Another 75BP in July With Rates Ending the Year at 3.5-3.75%
According to analysts, there is a positive risk to the Fed’s forecasts for rate increases. The supply side of the economy should better balance with robust demand in order to reduce inflation swiftly.
But given the geopolitical setting, Covid containment measures in Asia, and the scarcity of workers in the US, it doesn’t look like this will happen very soon. As a result, the Fed will need to undercut demand by monetary tightening as inflation is likely to be slow and sticky on its way down.
Then, we foresee 50bp changes in September and November, followed by a 25bp increase in December. This would represent the Fed’s most aggressive tightening path since 1988 and is close to where the market is pricing it. These measures will be complemented by the bank’s plans for quantitative tightening.
So it can be termed a short-term crypto bear market rally. As the analyst concludes this bear market won’t finish unless the Fed decides to start easing, which they predict will happen at the end of the third quarter.