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Macro economic developments have been greatly influencing cryptocurrency charts since the beginning of 2022. Amid bear markets, the journey of rapid monetary tightening that has been dampening risk appetite may soon reverse direction. The Fed is expected to cut rates, but sticky inflation worries are causing confusion, and the market is still expecting a reduction of over 75 basis points.
Statements from Fed Members
The Fed is expecting a 75 basis point cut this year, but markets are still anticipating 4-5 rate cuts instead of 3. The expectation of a 150 basis point cut has been adjusted to the 100-125 range, and the scenario of an initial cut in March has been completely eliminated. This excessive optimism had previously led to declines in the crypto market during the bubble-bursting process. Now, incoming data confirms the strong stance on the employment front and the slowdown in the inflation decline.
Fed member Mester, at the time of writing, struck a blow to the overly optimistic by stating that interest rates in 2024 may not fall as rapidly as they did last year. Mester said the following;
“We cannot rely on the disinflation rate of last year to continue this year. January’s PCE data does not change the view that inflation is on a downward trend. The Fed still has more work to do regarding inflation. Monetary policy is restrictive, demand should cool down. A slowdown in employment growth is what we need to see to ease policy. Right now, three rate cuts this year seems right to me. We are in a really good place in terms of policy and the US economy.”
Following today’s PCE data, Goolsbee said;
“If the significant productivity gains continue, it will have an impact on monetary policy.”
Fed’s Bostic suggests that rate cuts may not start before the summer months.
