The Bitcoin Swing Set: Possible Outcomes Of A Dovish Vs Hawkish Fed
14 June 2022 - 3:47PM
NEWSBTC
Bitcoin shed over 15% in the last 24 hours to around $21k and the
whole crypto market sank below $1 trillion on Monday. Whether
this gloomy start of the week will be followed by even more
downside or some relief, could depend on next week’s meeting of the
US Federal Reserve (FED). Related Reading | Crypto Markets
Lose $100 Billion As Bitcoin Drops Below $26K – More Pain Ahead?
Dovish Or Hawkish? The US is seeing the largest year-on-year
increase of the Consumer Price Index since December 1981. Inflation
has not been “flattening out” as Fed Chair Jerome Powell expected
in May. Many analysts think this calls for a hawkish Fed and have
predicted the next interest raise hike to be higher than previously
announced. But others think that the Fed is not likely to surprise
investors with a higher hike, so a hawkish scenario is still
doubtful. Nevertheless, the fear of recession is here and so is the
bear market. JPMorgan Chase & Co. strategist Marko Kolanovic
explained in a note shared by Bloomberg why the next move could
remain dovish: “Friday’s strong CPI print that led to a surge in
yields, along with the sell-off in crypto over the weekend, are
weighing on investor sentiment and driving the market lower…
However, we believe rates market repricing went too far and the Fed
will surprise dovishly relative to what is now priced into the
curve.” But JPMorgan economist Michael Feroli thinks the opposite
and expects a 75bps increase. Meanwhile, Guy LeBas explained the
mechanics of what happens at an FOMC meeting, stating that “Most of
the time there are two realistic choices–“A” and “B”–but in times
of extraordinary change or volatility, there are sometimes more.
Incidentally, archived teal books are available here for the
curious.” “I am willing to bet that Option A is a 50bps rate hike
with hawkish guidance for a faster pace of hikes thereafter. Option
B is a 75bps hike with neutral guidance. Option C, if it’s serious,
probably includes a faster pace of balance sheet runoff.” LeBas
took into account a WSJ article that also claimed the “troubling
inflation reports” could lead to a surprise 75bps interest rate
hike by the Fed. The WSJ article quotes “Two consumer surveys have
also shown households’ expectations of future inflation have
increased in recent days,” previous statements by Fed Chairman
Jerome Powell, and the analysis of several Wall Street forecasters.
On one hand, Powell had said: “What we need to see is clear and
convincing evidence that inflation pressures are abating and
inflation is coming down. And if we don’t see that, then we’ll have
to consider moving more aggressively.” This could paint a
0.75bps scenario if we take into account the inflation reports.
Nevertheless, LeBas thinks that “Option A and B are both good
possibilities for June. I lean towards A (hawkish 50) as most
probable.” Similarly, a Twitter user added that it is a tough
situation: “A. The Fed sticks with 50bps. Market sees them as too
slow and not serious enough. B. The Fed does 75bps. Market sees
them as panicking and going against their word from 2 weeks ago.
Market falls either way.” But the analyst Michaël van de Poppe is
also leaning toward “option A”: “J.P. Morgan expecting 75bps hike
for Wednesday. I would say that’s likely not going to happen and
50bps or lower is going to call the reverse on Bitcoin.” Several
investors seem to agree with the “market falls either way”
conclusion. Anything below 75bps is usually seen as beneficial for
Bitcoin, but is the US economy already too deep in the mud for
50bps to make an actual difference in the market? President at
EverGuide Financial Group, LLC. Mark R. Painter thinks that 50bps
or 75bps “In the end it doesn’t matter because they already made
their policy error and short-term moves are nothing more than
position unwinding.” So the big question for bitcoin is whether a
dovish FED could actually bring a rally/reversal, or if this bear
market still has more investors’ tears to shed. As always, both
scenarios could happen, but it is still not likely that the crypto
winter will be over with a 50bps hike. Related Reading
| Bitcoin Plummets To $23000 ; How Long Till It Touches
$20000?
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