Türkçe
Español
Fed and Cryptocurrencies
Crypto markets were expecting high volatility tonight. However, Powell’s statements kept the price almost stable. So, what should crypto investors pay attention to in the coming days after the interest rate decision and Powell’s statements? Let’s discuss a comprehensive evaluation of the current situation and expectations.
We shared Powell’s statements in detail as breaking news. These statements were in line with expectations. We did not see an overly hawkish stance, which shows that the incoming data is not as bad as expected. While unemployment did not increase as expected in the latest data, wage increases were at a concerning level. Powell believes that wage growth needs to decrease even further to combat inflation. At least, they want this during the current tightening period.
Therefore, the wage growth data to be announced next month will be crucial for us. It will also create significant fluctuations in the price of cryptocurrencies. Powell, who reiterated that the rate of decline in inflation has slowed down, verbally expresses the general market sentiment on this issue. What he did not say was that the inflation, which has fallen due to the base effect, is not declining sustainably.
What Will Happen to Cryptocurrencies?
The real question is, the Fed now acknowledges that the policy is tight. We received signals that the interest rate ceiling will not be announced before a few meetings if the rate of decline in inflation increases. Worse, if inflation does not continue to decline or stops, the Fed may make consecutive interest rate hike decisions in the meetings. Powell is aware that he has moved beyond the verbal guidance phase of the market and expressed it clearly.
We are entering a period where macroeconomic data is much more important for crypto investors. While we follow the recession that the Fed says we no longer expect with PMI data, core inflation data will tell us whether sticky inflation is being resolved or not.
The following things are clear:
- There will definitely be no interest rate cut this year. In fact, considering the current outlook, it seems that the best scenario is to have one more interest rate hike and announce the ceiling for the remaining meeting, and a cut cannot be expected. If we do not see that inflation has dropped very rapidly as a surprise, we cannot see that a cut has been made in the first quarter of next year.
- After the announcement of the interest rate ceiling, the Fed usually starts cuts within 6-9 months. Powell said that he will stay as tight as necessary in monetary policy. So, if the interest rate ceiling is announced in the best scenario in the 9th month, interest rate cuts can begin in the second quarter of next year.
- The Fed says that we need to wait until 2025 for a real easing that will lift risk markets. According to their estimates, inflation will have fallen to the 2% target during this period, and tight monetary policy will be what they will bring when they see that inflation has stabilized in this range.
- For cryptocurrencies, we will continue to feel the pressure of tight monetary policy until the end of 2023. The expected July rally did not happen, but if August data such as PMI, Unemployment, Inflation, and TDI come in extremely good, we can see the market rise with the expectation of an early announcement of the interest rate ceiling.
We may see the pricing of all these factors in the coming hours. Bitcoin does not stay stuck in narrow ranges for a long time. If we see closings above $29,700, the target of $31,000 can be reached again. The expected thing (at least from the Fed’s perspective) is a run towards the $26,500 bottom with closings below $28,800.
