Yesterday’s GDP figures impacted planned interest rate cuts negatively, causing rapid sales in cryptocurrencies following our last-minute warning. The new day hasn’t started well for cryptocurrencies either. ETF flows are troubling, and losses in altcoins are deepening. Fed member Barkin made some noteworthy remarks just moments ago. As this article was prepared, the PCE data, which will be decisive, had not yet been released.
Fed Announcements
For the first time this week, we witnessed such a heavy load of Fed announcements. Most members shared their current views. The prevalent opinion is that unemployment has increased more moderately and inflation has stayed above target for a long time. Fed members can tolerate a 4.5% unemployment rate before the year ends, with yesterday’s GDP numbers confirming early recovery signals in employment.
These details effectively disrupt stable interest rate cuts, reversing the potential of another 50bp cut that markets had priced in. This is the fundamental reason for the decline. In Barkin’s recent remarks, the following points stood out:
“Currently, there is little confidence in inflation forecasts. Consumers are weary of price hikes. Companies want to pass costs onto consumers, but consumers are turning to cheaper products and making cautious purchases.
Inflation is heading in the wrong direction, and so is unemployment. The downside risks for employment and inflation are relatively limited. Limited increases in unemployment rates are expected.
The Fed will have to adjust its stance as it gathers more information. The more valuable aspect is understanding how the economy reacts in real-time. I’m unsure whether the Fed will change its targeted policy interest rate. It’s important to note how little information we currently have about how inflation and unemployment will evolve.”
Cryptocurrency Commentary
Yesterday, BTC ETF entries were dismal, and everyone is focused on the PCE data. By the time you read this, the data will already have been released. If the data is good, fear of next week’s employment figures will grip the markets. If bad, a risk aversion tendency will emerge again due to concern over next week’s upcoming employment figures.
Predictions for employment indicate a recovery compared to the previous month, so risks were reduced at the start of this week. The decline in altcoin prices was evident. For the Fed to proceed on a stable rate reduction path, employment must deteriorate further, and inflation should remain flat. The emphasis on uncertainty seen in Barkin’s statements is not favorable for risk markets.
