US Fed Inactivity May Lead Bitcoin to Moon, However, a Negative Impact is Possible

The US Federal Reserve (Fed) is set to wrap up its own two-day assembly now, finishing with Chairman Jerome Powell holding a press briefing – and together with many anticipating lack of action to follow, the Cryptoverse insiders see this as possible fuel for the rocket that’ll take bitcoin (BTC) and other cryptos to the moon. On the other hand, the assembly outcome may also lead to BTC retesting reduced levels. In any event, it seems that the Fed will, in 1 way or another, influence the crypto markets.

Mati Greenspan, Founder of Quantum Economics, opined that“it would look that inaction from central bank officials might well send bitcoin and other cryptocurrencies right to the moon“

This comes following hedge fund billionaire Paul Tudor Jones said he would keep track of what the Fed does now, and if it proceeds to speak down inflation and fail to do it, it will be“a green light to wager heavily on every inflation commerce “

Greenspan further noted that Jones“teas[ed] out“ the (in)famous WallStreetBets subreddit group by“hinting that commodities are a killer investment should the Fed permit inflation to run uncontrolled.“

Many analysts estimate that the Fed is unlikely to take any coverage actions, but is very likely to signal which one’s it may (think to) take. It will launch its quarterly economic forecasts, while it might boost its inflation forecast, and pencil in an initial rate hike in 2023, per CNBC. The 2023 inflation forecasts are being viewed the most because the Fed would expect to boost interest rates afterward if inflation continues.

Also, JPMorgan economists expect several Fed officials to modify their position and support a 2023 hike, while the Bank of America strategists do not expect an agreement on a 2023 hike.

All this comes as the producer price index (PPI), which measures the average prices of goods and services produced, rose 6.6% during the 12-month phase ending in May. However, a few, like Kyle Bass, the founder of Hayman Capital, said that the actual inflation rate at this time is probably around 12%.

The assembly would therefore lead to a decision on whether to (and how to) start a essential policy modification that fights with the framework the central bank adopted recently to guide and signal monetary policy intentions, based on Mohamed El-Erian, an economic adviser at Allianz and also the President of Queens‘ College at the University of Cambridge.

But unless the Fed signs within the upcoming few months that it would accelerate its response function,“the risk would increase that this [assembly ] could end up being the calm before the storm rather than the good foundation for its large, durable, inclusive and sustainable growth that’s needed coming from a tragic outbreak,“ said the economist.

What’s unlikely to happen, in his view, is the Fed“reducing exposure to a now more risky position by moving forward with a partial dip in light of the altered circumstances, thus keeping their options open and better balancing danger“ – instead, it will“probably fall short of what is required and risk exacerbating the challenges — and the economy — face in the longer term.“

While the Fed’s (and many others‘) projections anticipated a slower economic recovery and limited inflation, what we’re seeing now, states El-Erian, is“a much hotter inflation outlook and, with this, the need for an accelerated timeline.“ On the other hand, the 2019 policy framework, encompassing a change from forecast-based to outcome-based policy actions, would have provided the Fed with“a foundation for a justified multiyear glide path for an extremely slow and orderly policy transition“

El-Erian concluded that the coverage transition will probably be delayed further and also the more the Fed delays“the higher the threat it will be forced to slam on the coverage brakes down the road.“

According to him, it would increase the danger of both an economic downturn and financial market uncertainty, sabotage social and economic well-being, complicate economic reforms and make adverse spillover effects for other nations, especially in the developing nations.

By repeating that’inflation will probably be transitory/temporary‘ and that they’re’not thinking about raising rates,‘ the Fed made it rather hard for itself to act swiftly and effectively, said Greenspan, while some discussion of raising rates at this point to thwart inflation“would surely spook the markets““

A barrier to a“total market meltdown“ now, he added, is“erroneous circular logic“ The economies are calm at this time because they’re wagering which Fed officials would rather double back on their prior statements than alter program and suddenly raise interest rates.

Hawkish and dovish Fed

In the event of a hawkish Fed, said Greenspan, stocks may suffer if the important stakeholders show concern about inflation and the interest rates raising talk, but for crypto – the potential effect is“simpler“

After last month’s near 50% pullback, digital assets are not“almost as overvalued“ currently since the stock market is, he contended, and especially bitcoin is regarded as a hedge against Fed money printing and the consequent inflation.

„when the Fed does crash the market, there’s a real possibility that bitcoin, and possibly other cryptocurrencies, may be seen as safe havens.“