The rally for Bitcoin is stalled? Not so fast! here’s why

[ad_1]

Yesterday’s Federal Reserve (FED) FOMC meeting turned out to be more hawkish than many Bitcoin investors and the financial market expected. As expected, the Fed raised interest rates by 0.5 percentage points on Wednesday. This brings the interest rate to a range of 4.25 to 4.5%, the highest level in 15 years.

However, overall, central bankers expect the rate to be higher next year than originally expected, which was perhaps the most influential factor in the reaction of the bitcoin market and yesterday’s cryptography.

The Fed is more hawkish than expected

The FOMC’s dot chart revision showed that on average, monetary policymakers expect to raise the rate to 5.1% in 2023 before lowering it to 4.1% in 2024. This means that the Fed will have to raise the fed funds rate another 0.75. bps in 2023. Whether that will happen in three stages or less is something Powell declined to commit to on Wednesday.

“More important than speed is the question of how much interest rates will have to rise and how long we will stay at this level,” said Fed Chairman Jerome Powell.

At yesterday’s FOMC press conference, the Fed Chairman was extremely hawkish. At least he tried to point it out again and again.

Investors had hoped that interest rates would rise less sharply in the coming year and now fear the Fed could trigger a recession in the United States with its policy. However, Powell stressed that the Fed is “committed” to bringing the inflation rate back to the 2% target. However, “there is still a long way to go before that happens.”

Additionally, the Fed Chairman stressed that he wants there to be “a painless way” to fight inflation. But “there is none”.

Economists react to Powell’s speech

The fact that the price of Bitcoin did not dive after Powell’s comments yesterday could also be due to the market not believing Powell’s words.

The Fed’s hawkish policies increase the risk of sending the economy into recession. In that case, “the political pressure on Powell would increase,” said former Fed Governor Frederick Mishkin. After all, Mishkin argued, then it would be particularly difficult to raise interest rates further when the economy was already in bad shape.

Star investor Jeffrey Gundlach of Double Line Capital expects a recession in the first half of 2023 when the Fed “turns around and cuts rates again,” he said at an online event Monday. .

Fear that monetary policy makers will do serious damage to the economy outweighs the desire to fight inflation, he said. “Even if the central bankers are saying something else right now.”

Bloomberg Surveillance’s Lisa Abramowicz described the sentiment of many analysts on Twitter as follows:

The Fed: We are warmongers! We still have work to do! Market: Got it, so you take another step toward a 25 basis point rate hike in February and cut rates later in the year. I understood.

Abramowicz bases this assumption on the fact that Powell has repeatedly spoken of “the Fed’s best estimate yet”. Powell may have given the green light to a 25 basis point hike in February.

Tom McClellan of “The McClellan Market Report” wrote via Twitter that Fed rate hike cycles usually end when the fed funds rate reaches the level the 2-year yield has already reached.

“We have this condition now. The Fed should therefore halt, but there is no indication that it knows, based on the post-meeting announcement,” McClellan wrote, referring to the chart below.

Objective of the FED fund compared to the yield of 2-year T-Notes. Source: TwitterBitcoin rejected during major resistance

Bitcoin price surged ahead of the FOMC meeting, but held up very well despite a hawkish Powell. A look at the daily chart reveals that BTC is somewhat overloaded and has been rejected at $18,220.

Therefore, it seems likely that Bitcoin will have a consolidation, for the time being, looking for a higher low. The acreage to hold is currently $17,200 to $17,400.

Bitcoin price, 1-day chart. Source: Trading View

[ad_2]