Robert Steinadler, a month ago

Winds of change for crypto: Will the Fed turn “dovish” in 2023?

The Fed meeting minutes were published yesterday, and they revealed something that could indicate a big change for the crypto market in 2023. Will the Fed stop with the rate hikes, and what key indicators are important to watch within the next two months?

Slowing the pace

The Fed clarified that it is still determined to strengthen the US job market and reach its 2% goal for inflation. However, it is expected that the rate hikes could slow down, meaning that hikes in 2023 could be lowered from 50-75 bps down to 25-50 bps.

This is not the end of the Fed's intervention, but it shows that the members of the FOMC are willing to go easy on the markets if conditions are met. With that being said, this is not exactly bullish news because the determination to continue a hawkish approach is still there.

What we all need to pay attention to are the current inflation and the job market. Should inflation increase in January and February 2023, then it is possible that the Fed could once again react increasingly hawkish. Another factor is economic growth. If companies start to have a hard time, then inflation might not be the only problem this year.

What does that mean for crypto?

Crypto markets have reacted to the Fed’s policy for the last year. Rates went up, and the market went down. This has caused a lot of doubt if there will be any hope to leave that vicious cycle. While nobody can predict the exact outcome for the crypto market, it is notable that many analysts expect rates to settle somewhere between 4,25% and 5,5% at the end of this year.

Should those expectations be met, then there is a good chance that tech stocks and crypto are going to recover from the bear market. The Fed is signalling that a pivot is possible. Now everybody is playing the waiting game because only the results for Q1 will tell if everything is going according to plan.

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