FED’s Interest Rate Increases Won’t Make Cryptocurrencies Worse Off

FED head confirms: we’ll raise interest rates to lower inflation and Altcoin Daily believes the bottom for cryptocurrencies is near

Speaking at the European Central Bank’s annual conference in Sintra today, Fed Chairman Powell made it clear that the Federal Reserve is committed to lowering inflation, even if that means raising interest rates to levels that threaten economic growth. His comments reaffirmed that the Fed will “do whatever it takes” by continuing to raise interest rates to bring inflation back to the Federal Reserve’s 2% target.

The chairman acknowledged that “there is a risk” that the Federal Reserve’s revised monetary policy will cause the economy to contract to lead to a recession, and said:

I do not agree that this is a greater risk. The bigger mistake would be not to restore stability to prices.

Because current forecasts suggest that tomorrow’s Personal Consumption Price Index (PCE) report will reveal that inflation will still remain more than three times the Fed’s 2% inflation target in May. If these forecasts come true, it will increase the likelihood that the Fed Reserve will raise interest rates by 75 basis points at the July 26-27 FOMC meeting. The Federal Reserve recently revised its “dot plot” to reflect roughly double its previous inflation target by the end of the year from 1.5% – 1¾% to a minimum of 3.4%.

Although the governor eased fears of a recession, saying the economy is “in fairly strong shape” and will be able to cope with tighter credit conditions while avoiding a recession or even a significant rise in the unemployment rate, he added one major caveat. He said the road to a “soft landing” will become “much more difficult” the longer high inflation lasts.

The new data suggest that inflationary pressures will remain extremely high. Also, the BEA reported today that “Real gross domestic product (GDP) declined at an annual rate of 1.6% in the first quarter of 2022, after rising 6.9% in the fourth quarter of 2021. The decline was revised downward by 0.1 percentage points from the ‘second’ estimate released in May.”

The combination of Chairman Powell’s statements and earlier forecasts suggests that the inflation seen in tomorrow’s PCE price index report caused extreme dollar strength in anticipation of higher rates. The dollar’s strength was the net result of market participants focused on interest rate hikes rather than current inflationary pressures.

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