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 “surge” expectations. “.
Bitcoin’s price — after crashing in the first six months of the year when the Fed started raising interest rates — bottomed out in July, climbing about 10% since the start of the month. Ethereum meanwhile soared almost 50% due to the hype surrounding its planned upgrade, which helped other top 10 cryptocurrencies.
Now, after leaks revealed a ‘major red flag’ for bitcoin and cryptocurrency exchange Coinbase, the market is bracing for the Fed to go ‘bigger and longer’ in its fight against inflation. glowing as it accelerates the reduction of its $8.9 trillion balance sheet.
Federal Reserve Chairman Jerome Powell walks a tightrope between runaway inflation and a… [+] recession, driving stock markets and the price of bitcoin, ethereum, BNB, XRP, solana, cardano and dogecoin.
The Federal Open Market Committee (FOMC) of the Federal Reserve will meet on Tuesday and Wednesday this week and is expected to raise interest rates another 75 basis points, on the heels of June’s rate hike.
At the beginning of the month, after the publication of a consumer price index (CPI) of 9.1% in June, traders expected the Fed to hike rates by one percentage point.
“Financial markets had started pricing in a one percentage point rise in interest rates at this meeting, but Fed officials appear to have discounted that prospect,” wrote Russ Mould, chief investment officer at the Fed. broker AJ Bell, in emailed comments.
According to data from CME Fedwatch, markets estimate a 70% chance of a 0.75% to 2.50% hike and a 30% chance of a full one-point hike. By the end of 2022, the market estimates a 90% chance that the fed funds rate will reach at least 3.50%, as the US central bank strives to bring inflation down to 9.1 %, its 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. “If not, all bets are off.”
A producer price index (PPI) of 11.3% this month, close to March’s record high of 11.6%, ‘suggests there could be even more pain ahead’, according to Mould. .
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 high of $9 trillion, to $95 billion a year. months from September.
“The Fed’s total assets of $8.9 trillion still means the central bank’s balance sheet is 8% larger than a year ago, 114% larger than before the February 2020 pandemic and almost nine times larger than before the great financial crisis of 2007-2009,” Mould added.
The price of bitcoin climbed back above $20,000 this month after crashing below the … [+] closely watched level and have caused the price of ethereum, BNB, XRP, solana, cardano and dogecoin to swing.
Some market watchers and investors fear that US inflation is “deeper entrenched” and the Fed will need to respond “bigger and longer” to bring it down.
“My own 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 couple of bruising months for the stock market, bitcoin and cryptocurrency prices, some analysts are hoping that softer language from the Fed this week could provide welcome relief.
“If they do a 75 basis point hike, as we expect, but soften the language on future hikes, that would give markets a huge boost next week,” Luke Barrons told Tilley, chief economist at Wilmington Trust.
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