The Fed’s policies will always influence the crypto market. We look forward to new dynamics at the end of this month, is the rate hike more aggressive to reach 100 basis points?
Thomas Peterffy, Director of Interactive Brokers believes the Fed probably won’t raise interest rates this month more aggressively than before, as the central bank fears it will bring down the economy, what about crypto if that happens?
The current inflation rate in the US is 9.1 percent year-on-year, as of last June 2022. That was the strongest inflation during a similar period in 1981.
The big inflation is the impact of years of low interest rate policies, plus quantitative easing policies, plus the 2020 pandemic and the 2022 Russia-Ukraine war.
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To overcome that, since November 2021 the Fed is planning to start quantitative tightening which basically pulls the dollar from the market, coupled with raising interest rates. The impact is clear, the dollar’s value against a number of other currencies skyrocketed to 109 a few days ago, based on the dollar index (DXY). Another central bank voiced the same thing, having suffered the same fate.
A number of observers argue that the policy of high interest rates, if not carried out effectively or too aggressively, will lead to a recession, because economic growth slows down.
After last month’s US inflation of 8.6 percent, the Fed also decided to raise its benchmark interest rate by 75 basis points. Now that inflation has jumped to 9.1 percent, the Fed is expected to raise another 100 basis points.
However, some observers say otherwise, that the Fed could only raise 75 basis points as before at the FOMC later this month, not by 100 basis points.
The crypto market suffered a slump following the release of inflation statistics, but recovered quickly over the weekend.
According to Thomas Peterffy, a billionaire and the Founder and CEO of Interactive Brokers, he believes the Fed will not follow the aggressive pattern of hikes it outlined last month.
“I don’t believe the Fed will follow through on its promise to do what it takes” [untuk menurunkan inflasi-Red]because they are afraid of destroying the economy and exploding debt problems,” he said Finbold.
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This can be interpreted, that the massive and gradual increase in interest rates in July 2022 will have a negative effect on the stock and crypto markets that have been falling since November 2021. And if the opposite happens, the Fed softens a little, then the value of the crypto market in particular, could strengthen again, when Monday (18/7/2022), reenter US$1 trillion.
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At its meeting in June, the Fed decided to raise interest rates by 75 bps, citing the need to take urgent action to combat inflation.
The organization said it would make every effort to bring down inflation, even though doing so may be costly and carry inflation risks. This was also confirmed by the Ministry of Finance Janet Yellen at that time.
Technically, the US is already in a recession, because economic growth has slowed for two consecutive quarters. This is also another factor that the Fed may not raise interest rates by 100 bps as predicted by market participants.
Another thing is because the unemployment rate in the US began to fall during the second quarter, plus the price of fuel at the retail level has started to subside, which is a good sign, that inflation next month may be lower.
On July 14, 2022, Trading Economics forecastthe dollar index (DXY) continued to strengthen until the third quarter of 2023, reaching 114. This score was last reached on May 13, 2002 and in early March 1986, after the super aggressive interest rate policy of 1981.
Meanwhile, the inflation rate (inflation rate) as of June 2022, 9.1 percent will peak, before dropping to around 8.5 percent in the 3rd quarter of this year, then shrinking to 1.9 percent in the 3rd quarter of 2023 (in line with the Fed’s target, 2 percent).
While the interest rate (interest rate) is expected to move the most at 3.75 percent in the 3rd quarter of 2022.
Soft landing (without a recession) may be avoided, as the unemployment rate may be held at 3.6 percent through the first quarter of 2023.
The Fed and Impact on Crypto Markets
The only chance for the crypto market to bounce higher is when interest rates pressured lower, so the dollar weakened as last year. It also had to be accompanied by a recession, which forced the Fed to pour more dollars into the market to save the economy. [ps]
