On Wednesday, the Federal Reserve stepped up its battle against high inflation by raising its benchmark interest rate by three-quarters of a point, the highest increase since 1994. The Fed also hinted at future rate increases as it works to reduce inflation without triggering a recession.
But reality hit a day later.
In response to investors’ realization that the economy would likely be affected by higher interest rates and a greater risk of a recession as a result of the Fed’s harder attitude, stocks fell on Thursday.
Altcoin Daily’s Austin analyzes the general crypto market, the FOMC meeting and its implications for the crypto bear market, as well as what to expect from the July Fed meeting.
BTC Wobbles But Regains Quick
BTC dropped to $20K after the news of the hike of three-quarters of a percentage point. Soon after Fed Chair Jerome Powell’s announcement, the price started to rise again.
Jerome Powell made it clear that rates would be raised quickly in the future. All eyes are on the Fed meeting in July after the Fed announced a 75 basis point hike, their most aggressive hike in history. There are strong indications that inflation will decline and eventually reach 2%.
The Fed believes that continuing rate hikes are reasonable. However, the incoming data and changing economic projections will continue to influence how quickly such adjustments occur.
“It’s obvious that today’s 75 basis point increase is exceptionally large, and I don’t expect to see many increases of this size in the future. So, based on the current situation, the most likely hike at our next meeting is either a 50 basis point hike or a 75 basis point hike.”
Jerome cautioned that despite the swift hike, there would probably be another substantial increase of either 50 or 75 basis points next month. This suggests that market suppression will probably continue in the future and that it is probably their only chance to avert the skyrocketing inflation this year.
The Youtuber pointed to another key point: how close are we to reducing this inflation?
Richard Fisher Warns That the Fed Still Has Work to Do Because Inflation Has “Metastasized”
Richard Fisher, a former president of the Dallas Federal Reserve, has been having discussions like this for years, and the analyst likes his point of view. He claims that “inflation isn’t going anywhere anytime soon” because “he is talking to so many private companies. who are saying they’re not budging under prices because they can’t afford it right now,”
Fisher went on to say that he didn’t believe the Fed’s 4% interest rate hike would be enough to rein in inflation. Instead, according to his forecast, it will probably have to go further in the coming months.
Another 75BP in July With Rates Ending the Year at 3.5-3.75%
According to analysts, there is a positive risk to the Fed’s forecasts for rate increases. The supply side of the economy should better balance with robust demand in order to reduce inflation swiftly.
But given the geopolitical backdrop, Covid containment measures in Asia and the scarcity of workers in the US, it doesn’t look like that’s happening anytime soon. As a result, the Fed will have to undermine demand through monetary tightening, as inflation is expected to be slow and persistently lower.
Then, we foresee 50bp changes in September and November, followed by a 25bp increase in December. This would represent the Fed’s most aggressive tightening path since 1988 and is close to where the market is pricing it. These measures will be complemented by the bank’s plans for quantitative tightening.
So, this can be termed as a short-term rally in the crypto bear market. As the analyst concludes, this bear market will not end unless the Fed decides to start easing, which they believe will happen at the end of the third quarter.
