Fed tapering buys time - crypto heads higher

Fed announcement on tapering and expected rate hikes was just enough to appease those worried about rampant inflation, but not enough to suggest that the punch bowl will be taken away any time soon.

The market had been nervously anticipating the Fed’s final meeting of the year at the FOMC (Federal Open Market Committee). Most media news reporting on the event had the Fed down as “hawkish”, as it announced that it would be doubling the rate at which it is reducing its treasury and mortgage-backed securities purchases.

“In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities,”

The Fed has also hinted that it will raise the federal funds rate, by perhaps as many as three times next year, according to an article on Forbes yesterday. 

However, it does rather look like the Federal Reserve has just done the absolute minimum in order to appease the concerns over inflation, despite the positive spin added to a lot of the world’s media reports.

Perhaps the fact that it is trapped between a rock and a hard place just doesn’t give it licence to start really hiking those rates in order to stop inflation in its tracks. And perhaps inflation running hot actually suits the Fed as it is helpful for paying down the debt.

At least we no longer have to look on with reverence as Jerome Powell attempts to explain what on earth he means by “transitory” inflation. The video of him trying to do this still causes many a toe to curl.

Once again the media has kindly gone along with Powell and has gently accepted his admittal that it was time to “retire” the word. Perhaps the fact that “rampant” or “raging” being far more apt adjectives, had led to the change of heart.

The cryptocurrency markets reacted strongly to the Fed announcement, with Bitcoin, and most cryptocurrencies up on the news. The fact that the Fed will not or cannot stop feeding currency into the system only makes the crypto case stronger.

Of course, central bank mismanagement of an economy does impact negatively on crypto, as scared investors pull out of what is still a media inspired perception of crypto as a “high risk” asset.

But once the facts sink in, that one of the only available lifeboats is indeed Bitcoin and some of the stronger fundamental cryptocurrencies, then the rush from the Titanic of fiat currency and into crypto will be unstoppable.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.