2023-1-31 15:54 |
The Federal Reserve meeting scheduled on Wednesday may be hawkish for the dollar Bitcoin might give up some of its 2023 gains on a hawkish Fed All eyes are on the Fed’s view on inflation, growth, future interest rates, and quantitative tightening
The Federal Reserve’s monetary policy decision is scheduled this week. It is the first time the FOMC (Federal Open Market Committee) meets in 2023, and the stakes are high for the US dollar.
Bitcoin has strengthened against the US dollar in January so far, in sync with other fiat currencies. Therefore, whatever the Fed decides on Wednesday will affect Bitcoin price too.
A hawkish Fed may turn up being bearish for Bitcoin. These are the four areas where the Fed may express its hawkishness: inflation outlook, growth outlook, interest rates level, and quantitative tightening.
Inflation outlookThe Fed is committed to bringing inflation to its 2% target. This is why it has raised rates so aggressively, so if the Fed says that inflation is embedded and upside risks remain, then the US dollar should move higher.
In this scenario, the market will bet that the Fed sees ongoing rate hikes as appropriate.
Growth outlookThe currency stance is that a sustained period of below-trend growth is likely. If the Fed changed its view and sees recession required to have a material impact on the inflation outlook, that would also trigger a sharp move higher in the dollar.
Interest ratesUltimately, it is all about the interest rate level. The funds rate range has reached 4.25%-4.50%, and all eyes are on what the Fed does and says on Wednesday.
The base case scenario is that the Fed will hike by 25bp and says that ongoing interest rate increases are appropriate. Therefore, anything more than that should be bullish for the dollar and bearish for Bitcoin.
For example, the Fed might hike 50bp. This is a risk going into the meeting, especially considering that inflation is not backing down as fast as initially thought.
Quantitative tighteningThe Fed currently shrinks the balance sheet at a pace of $95 billion/month. A decision to accelerate the balance sheet reduction would be very hawkish for the dollar.
The post 4 bearish factors for Bitcoin this week appeared first on CoinJournal.
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