Bitcoin and cryptocurrency prices have seen wild swings this month as traders try to gauge the Federal Reserve’s mood and the ethereum co-founder revealed his surprising expectations of a “surge”.
The price of bitcoin, after plunging in the first six months of the year when the Fed began raising interest rates, hit a low in July, climbing around 10% since the beginning of the month. Ethereum meanwhile has risen nearly 50% due to the hype surrounding its planned upgrade, which has helped 10 other major cryptocurrencies.
Now, after leaks revealed a “big red flag” for bitcoin and cryptocurrency exchange Coinbase, the market is bracing for the Fed to become “bigger and longer” in its fight against inflation. .
Federal Reserve Chairman Jerome Powell walks a tightrope between runaway inflation and a … [+] recession, driving the stock markets and the price of bitcoin, ethereum, BNB, XRP, solana, cardano and dogecoin.
The Federal Reserve’s Federal Open Market Committee (FOMC) will meet on Tuesday and Wednesday this week and is expected to raise interest rates by another 75 basis points on the back of the June rate hike.
Earlier this month, following the release of a consumer price index (CPI) of 9.1% in June, traders expected the Fed to raise rates by one percentage point.
“Financial markets had begun pricing a one-percentage-point hike in interest rates at this meeting, but Fed officials appear to have discounted that prospect,” wrote Russ Mold, chief investment officer at the Fed broker. AJ Bell, in the comments sent by email.
According to data from CME Fedwatch, markets estimate a 70% probability of a 0.75% to 2.50% increase and a 30% probability of a full one point increase. By the end of 2022, the market estimates a 90% probability that the fed funds rate will reach at least 3.50%, as the US central bank strives to bring inflation to 9.1%, the highest level. for 40 years.
“But all of this depends on, and even assumes, that inflation will peak very soon,” Greg McBride, chief financial analyst at Bankrate, told MarketWatch. “Otherwise all bets are void”.
According to Mold, a producer price index (PPI) of 11.3% this month, close to a record high of 11.6% in March, “suggests there may be even more pain.”
The Federal Reserve is also expected to accelerate its quantitative tightening plan, which has already reduced the Fed’s total assets by $ 66 billion from its record of $ 9 trillion, to $ 95 billion a year since September.
“The Fed’s total assets of $ 8.9 trillion still mean the central bank balance sheet is 8% larger than a year ago, 114% larger than before the February 2020 pandemic, and nearly nine. times larger than before the great financial crisis of 2007-2009, “Mold added.
Bitcoin’s price rallied above $ 20,000 this month after plummeting below the … [+] level followed closely and have fluctuated the price of ethereum, BNB, XRP, solana, cardano and dogecoin.
Some market observers and investors fear that US inflation is “more entrenched” and the Fed will have to respond “longer and longer” to reduce it.
“My view is that the Fed funds rate could exceed 4%,” Joseph Zidle, chief investment strategist at Blackstone’s private wealth solutions group, told Bloomberg. “I think they could go beyond 4.5%, maybe even closer to 5%.”
However, after a tough couple of months for the stock market, bitcoin and cryptocurrency prices, some analysts are hoping that softer language from the Fed this week may provide welcome relief.
“If they make a 75bp hike, as we expect, but soften the language about future hikes, that would give the markets a huge boost next week,” said Luke Barrons, chief economist at the Wilmington Trust.
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