- The FED could reduce monetary economic aid and advance the increase in interest rates.
- the interest rate could go as high as 2.5%, much higher than the forecast for 2022 predicted by three increases in interest rates in 2022 from current levels that range between 0% and 0.25%.
- The traditional and crypto markets have reacted to the reduction of financial aid by the FED.
Faced with rising US inflation and poor performance in the labor market despite constant aid of billions of dollars, the Federal Reserve Board of the United States central bank, better known as the FED for its acronym in English, could make the decision to reduce financial aid, a situation that has put all markets, including Bitcoin, on high alert.
The latest economic results for the year 2021 of the United States continue to be published in these first days of 2022. These results, in addition to not being “good”, are not encouraging towards the future of the entire world economy. For example, the level of inflation exceeded 6.8%, the highest since 1982, and the amount of generated jobs it was much less than expected, about 199,000 vs. the expected 400,000.
These results come as the amount of inorganic money coined by the FED continues to flow at a rate that humanity has never seen, all in order to keep the US and world economy afloat, situation that has led the FED to rethink if the time for quantitative easing is over, hence the reduce the amount of aid to the economy.
According to published minutes of the last FED meeting, held in December, it is detailed that The Fed could reduce monetary aid to the economy and also advance the increase in interest rates.
“Inflation fears dominated the discussion”Said Ian Shepherdson, Pantheon’s chief economist.
With this, heThe FED seeks to move away from its current stance of flexible monetary policy since, according to them, inflation is not likely to be a temporary phenomenon, but instead may last a couple of years, and that it is also likely to be higher than they predicted.
“Overall, participants noted that given their individual outlook for the economy, the labor market, and inflation, it may be justified to increase the fed funds rate earlier or at a faster rate than participants had previously anticipated.”, it is read in the summary of the minutes.
The market reacts
Immediately published the results of the last meeting of the US central bank, traditional markets began to adjust downwards in view of the possible new future reality, in which the Fed will stop injecting aid money and buying risk assets.
“We believe that the Federal Reserve will withstand some short-term volatility in the stock market to remove all the currency adaptations they have injected into the markets, however they will likely still heed the stock market recession warnings.”, Zaccarelli commented Chief Investment Officer of the Independent Advisor Alliance.
On the side of the interest rate, it reads that the FED could be willing to take them up to 2.5%, which, for them, is a “neutral” interest rate. What does not go hand in hand with the projections that the market had made, where they forecast three increases in interest rates in 2022 from the current levels that range between 0% and 0.25%.
This, in a nutshell and making a summary of the chain of events, would lead the public and investors around the world to get rid of part of their risk assets, including Bitcoin (BTC), and place their capital in the letters of the American treasure.
An example of this can already be seen in the increase in the yield on 10-year treasury bonds to levels seen before the Coronavirus pandemic.
Bitcoin reacts
This news, along with the Kazakhstan electricity supply crisis, has sparked fear in the crypto market that The large capitals that entered during the pandemic liquidate their large amounts of BTC to migrate to treasury bonds.
What has led to BTC price to be reduced by 12% during the week, to $ 42,000, its lowest level since September 2021.
Will BTC be able to bounce back from these two hard knocks for the week? Is it time to hodl or sell, or failing to buy more? Undoubtedly, only the passing of the hours will determine the path of the next weeks of the crypto market.
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