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The minutes of this month’s FOMC meeting by policymakers at the Federal Reserve have just been released, revealing a split within the bank on the need for another rate hike.
The tone was largely in line with expectations, with cryptocurrencies, foreign exchange, US equities and US bond markets largely unresponsive to the minutes.
In recent weeks, some Fed officials have hinted in favor of further tightening, while others, including Fed Chairman Jerome Powell, have hinted in favor of a moratorium on rate hikes.
The US central bank raised interest rates by 25bps to 5.0-5.25% after the 2-3 policy.rd May meeting, 10thth A series of rate hikes has pushed U.S. interest rates up 5.0% in just 14 months.
The Fed unexpectedly launched aggressive rate hikes in March last year to curb prolonged U.S. price pressures, but this hawkish turn of course puts stocks and crypto markets in 2022 as an ugly bear. lean to the market.
“Several participants noted that if the economy develops in line with current projections, there may be no need for further consolidation of policy after this meeting,” he said. minutes It said it was announced on Wednesday.
“Some participants said further policy tightening was likely to be justified at future meetings, based on expectations that progress back to 2% inflation could continue to be unacceptably slow. commented,” he said. the meeting continued.
The U.S. interest rate futures market had previously priced in about a 30% chance that the Fed would raise rates against Tuesday’s rate hike.th According to the report, the June meeting will be the same as the previous day. CME’s Fed Monitoring Tool.
Future data will be the key to whether the Fed raises rates again or stays on hold
However, these expectations could change quickly, and such changes could affect the near-term outlook for the cryptocurrency market.
“Many participants focused on the need to preserve selectivity,” the minutes said.
In other words, many Fed policymakers want to be able to react to incoming data. If future inflation and job market developments get more attention, more people may support further rate hikes, while more people will likely vote if these data releases bring unexpected downsides. would support rate hikes. Likely to support a moratorium on rate hikes.
Traders will therefore be keeping a close watch on April’s core PCE inflation data this Friday, ahead of next week’s April jobs report, May’s ISM survey results, and May’s official employment data. Become.
Consumer Price Index (CPI) data released on the 13thth Then the final piece of the June data puzzle will form for the Fed ahead of next month’s meeting.
As far as the crypto markets are concerned, major blue chips such as Bitcoin (BTC) and Ether (ETH) will likely outperform in an easing environment rather than accelerating Fed tightening speculation.
Indeed, powerful data and Fed’s hawkish remarks (i.e., policymakers calling for more tightening and defying market expectations of a rate cut later this year) have weighed on cryptocurrencies in recent weeks.
Bitcoin, which was last in the low $26,000s, is down more than 15% from its year-to-date high of over $31,000, while Ether, which recently traded just under $1,800, is in the mid-$2,100s. It has fallen by a similar margin from its year-to-date high.
A US default could be a catalyst for an upside
One of the wildcards that could change everything for the Fed, the economy and the cryptocurrency market in the coming weeks is the failure of Congress to reach a deal to raise the debt ceiling, resulting in an unprecedented U.S. government default. in case it occurs.
negotiation The conflict between Democrats and Republicans, who want to force the government to cut spending in exchange for help raising the debt ceiling, continues.
This is not the first time Congress has reached a deal on raising the debt ceiling, so the base case for the market at this point is that a last-minute deal will be struck.
But economists at JP Morgan said Wednesday that the rate at which the U.S. government runs out of money before a deal is reached is now about 25% and rising.
The default of the U.S. government, even if it is remedied quickly (i.e., even if an agreement is reached to pay off the default quickly), will have serious implications for the U.S. government, the U.S. economy, and the global financial order. There is a possibility.
The U.S. government’s ability to borrow could be irreversibly impaired (i.e., interest rates would rise structurally), exacerbating the credit crunch in the U.S. banking system that began in March with the collapse of a local bank. It is possible that there will be spending cuts that the government will be forced to agree to. That would lead to fiscal tightening, weighing on economic growth and increasing recession risks.
This whole ordeal will also undermine confidence in the US dollar and fiat currency based financial order more broadly.
That would stimulate massive demand for hard-money alternatives such as: MoneyBitcoin too.