The FOMC news went down easy today. What does that mean for crypto?
- FOMC Rate Hike
- Three Key Takeaways
FOMC Rate Hike
— Federal Reserve (@federalreserve) May 4, 2022
The Federal Open Market Committee (FOMC) announced today that it’s raising interest rates by a half percentage point, a.k.a. 50 basis points, and reducing the size of its balance sheet.
The FOMC pointed out the reason for the rate hike. “Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong.”
Fed Chair Jerome Powell pointed out during his address — the first one with reporters in- house in over 2 years — that although inflation is still “much too high,” some of that is due to “inventories and net exports” with “little signal.
As part of their balance sheet adjustments, The FOMC is expected to reduce its security holdings. However, they will be gradual and begin on June 1st.
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Three Key Takeaways
Macro Might Be Improving
It’s no secret crypto has been held down by a myriad of macro-related reasons like rate hikes, threats of recession, and the Ukraine invasion. It appears that the conditions might be improving, at least with the first two.
As Powell pointed out, thanks to the low unemployment rate and supply chain issues noise-ing up the data, it doesn’t look like the U.S. is heading into a recession based on inflation. Moreover, the rate hikes come at a time, as Powell pointed out, that the market is strong enough — thanks to better than expected job numbers — to take on a rate hike.
That said, the supply chain issues could continue even as Covid-related reasons for them subside thanks to the Ukraine-Russia war.
The Crypto Market Stays Neutral
Behind the scenes view of Jpow meditating before summoning a devious intraday chop pic.twitter.com/41Oj9eF1LN
— Altcoin Psycho (@AltcoinPsycho) May 4, 2022
The crypto market’s response is neutral so far. Bitcoin (ticker symbol: BTC) is up less than 1% in the first hour since the announcement. BTC is currently trading in the $39,600 USD range.
Back on January 26th of this year, when the FOMC announced that it wasn’t raising interest rates, the market didn’t move much much initially. However, by February 9th Bitcoin grew from 36k to 44k.
The Inflation Argument Isn’t Doing Much For Crypto
There’s little evidence to believe that “Bitcoin as an inflation hedge argument” is having much of an effect on its price. As Powell pointed out, “Inflation is much too high,” yet Bitcoin’s price has been trading sideways for all of 2022.
If anything, it appears more and more like Bitcoin’s price is tied to broader market health. That’s not necessarily a bad thing. It’s just a matter of switching from rooting for inflation to rooting for a recovery. If the recovery comes, 2020 and 2021 are a good measuring stick of what to expect if the market turns bullish.
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