Today’s FOMC meeting has been keenly anticipated by markets across the world. A 0.5% rate rise, the largest single rise for many years, is confidently expected, and already baked into markets. However, it’s what Fed chair Powell says after the meeting that will decide the short term direction of bitcoin and crypto.
A 50 basis point rise by the Federal Reserve today is an almost 100% certainty. Run-away inflation is the most feared boogeyman at this point in time and therefore rates must go up. James Bullard, CEO of the St Louis Fed, has even touted a 75 basis point rise in order to stem the inflation tide.
With all this very negative sentiment for the markets it might be expected that the current steep downturn continues without respite. However, the market has known of the impending rate hike for quite some time now, and therefore it is very much already priced in.
What isn’t priced in however, is what Fed chairman Jerome Powell might say after the FOMC meeting. Most of what the Fed has done so far as regards dampening the markets has been achieved purely by talking about what might happen.
Historically, his comments after the meeting are those that affect markets more because they cannot be anticipated with any certainty. Chairman Powell knows this, and therefore his words will be chosen very carefully.
Should he continue his hawkishness thus far, then markets are likely to continue their descent, and a US recession beckons.
It might be guessed that he wouldn’t want to let this happen, and so, given that markets have already come down substantially, he may well throw a bone to markets in the form of a commitment to ease up on the tightening where he can, and to change course if necessary.
In short, Powell will need to perform a tightrope act of the highest calibre in order to appease both hawks and doves, and bring the economy down to a “soft landing”.
What of crypto?
It might be said that bitcoin, the preeminent cryptocurrency, has weathered the storm pretty well so far. A faltering economy, the war in Ukraine, future higher interest rates - all this, and the price has gone sideways, still at a similar level to when the Russian invasion took place towards the end of February.
Bitcoin has put on a bit of a spurt so far this morning. No doubt in anticipation of the FOMC meeting later today. So what are the reasons for this?
As mentioned above, depending on the jaw-boning after the meeting, markets across the board are likely to see some upward action. Bitcoin is due a bounce after coming down to what many believe is a last support, at the bottom of the rising channel that bitcoin has been ranging in since mid January.
At time of press, bitcoin is breaking out and testing the resistance at $39,000. More fuel can be added to the breakout impetus if Powell does the expected. Expect the rest of the crypto market to follow suit should this happen.
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.