Robert Steinadler, 2 months ago
Today it was about that time again. The FOMC meeting came to an end and once again the press conference with Jerome Powell was highly anticipated. Why was this recent decision perceived as important by many analysts and how did Bitcoin and the market react?
With a banking crisis unraveling the FED is facing a serious dilemma. Many smaller and mid-sized banks are facing huge problems because they are sitting on enormous unrealized losses in bonds. These losses occurred because the FED had to increase rates at a pace that the market hasn’t seen in 40 years. In response, many depositors are fleeing these banks which hurts them even more. Once depositors ask for their cash they have to sell the bonds and realize the loss.
This situation has put the FED in a difficult spot. If they keep raising rates, they put pressure on the banks and might add fuel to the crisis. Stopping the rate hikes is also not an option since inflation is not coming down by itself and presents a serious threat to the U.S. economy.
With a 25 bps rate hike, the FED chose to fight inflation without putting too much pressure on the banks and the markets. In regard to the banking crisis, the promise that was given by the U.S. government to ensure all depositor funds might have helped more than today's decision.
Once again Powell had to manage expectations by holding a press conference and answering questions. He reaffirmed the FED’s willingness to fight inflation and also addressed the banking crisis and that the FED will do anything in its power to protect depositors.
The FED also expects inflation will pose a continuous risk and reiterated that the 2 percent inflation goal must be met. Powell said that more rate hikes might be necessary without the commitment to continuously increasing the rates. This indicates that pausing the rate increases might be possible but it strongly depends on how the economy will develop.
The crypto market reacted neutral to Powell’s speech and volatility stayed relatively low. Rate hikes are not paused but might be in the future. Powell’s statement left many spectators puzzled since it does not provide much of a guidance for investors. At the time of writing the Bitcoin price is ranging between $28,400 and $28,500 showing an overall neutral reaction to Powell’s speech.
Featured image: © Niamh Blanchard / Shutterstock.com
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