Robert Steinadler, 6 months ago

Powell curbs expectations and reaffirms rate hikes

On Tuesday, everybody was happy with the recovery of Bitcoin and the rest of the crypto market, but it was yesterday when it became clear what we have to expect from the Fed in the near future. Jerome Powell gave a press conference once again and while everybody was hanging on his lips, the market moved.

What do we have to expect from the Fed and its policies, and how is this going to affect crypto?

No surprises during the conference

The first thing Powell announced was that this month’s rate hike would be at 50 bps. That announcement met the widespread expectations of most analysts, and therefore the market recovered a little bit more.

As with previous meetings, the sentiment changed during Powell’s speech, and the markets plummeted over two particular statements. First, Powell pointed out that the Fed is not trusting inflation to go down further because the 2% goal is still far away. The CPI performed 7.1% YoY in November, and it seems that Powell’s observation was pretty obvious.

The even more important remark was that he implied that the markets have to cool down further and that the rate hikes are going to continue in 2023. Therefore, most analysts assume that the name of the game in 2023 will be to guess if the Fed is choosing 50 bps or 75 bps rate hikes after their next monthly meetings.

What does that mean for crypto?

Should the game continue between the markets moving on the release of the U.S. CPI data and the FOMC press conference, then we are in for a bumpy ride. The good news is that Powell already gave away the criteria for a pivot.

The Fed is interested in keeping the U.S. labor market healthy and pushing inflation down with each rate hike. To stop the rate hiker or go easy with less than 50 bps, either the labor market needs to be in peril or inflation is driven back to a level that suggests that the 2% target will be met within a reasonable amount of time. Powell reaffirmed the Fed’s commitment to reaching that goal.

Of course, some unforeseen events could also affect the Fed’s future decisions and can also have an impact on the market. In conclusion, the assumptions about what is going to happen are only true if we isolate them from external events.

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