The whole year 2022 was dominated by increasing inflation and the Fed’s decision to tackle the problem. This meant but one thing: One rate hike after another. Yesterday, the U.S. CPI data for November was released, and the market experienced a pleasant surprise.

Why are crypto prices recovering, and how could the Fed affect the market today?

Inflation remains a problem

Let’s face it, things are not looking good. Inflation has decreased on a YoY basis and even beaten expectations of 7.3%. With a YoY of 7.1%, the markets reacted positively yesterday. Bitcoin’s price increased by about 4.55% and the rest of the market also recovered.

While we can all be joyful about these changes, we are still far away from the Fed’s self-declared 2% goal. Many analysts expect that a pivot has to happen in due time, but at this point the U.S. economy is stable. A pivot would require one of two things. Either that the Fed or another event is somehow breaking the economy or that inflation is close to or at the target rate.

Hoping for the U.S. economy somehow to be hurt is not a good idea and as long as inflation is not tamed one could assume that the Fed is not done yet.

Fed meeting is going to end today

This week is indeed full of action. The Fed started its meeting yesterday and today around the evening Jerome Powell will tell the world once again how much the interest rate will be increased.

The common expectation is 50 bps but given the fact that the Fed hiked rates by 75 bps last month, it appears that Powell could crash the party. Again, everything will come down to expectations. Should the hike exceed expectations this would create a positive signal. If the Fed is going for a more hawkish approach and increases rates above expectations, the signal would be most likely negative. In both cases, the market is going to face more volatility than usual. The only scenario that would set the stage for a flat and more boring market is when expectations are met precisely. Keep in mind that even in this case market participants could interpret this as a bullish or bearish signal.

Once again the Fed is rolling the dice and is going to decide if we see a stronger recovery or more blood at the end of this fateful year.