Some central bank officials want to see “several months” of low inflation to gain confidence
On Wednesday, a number of Federal Reserve members gave indications that the U.S. central bank will keep raising interest rates unless there are definite indicators that inflation is slowing for several months.
This week, Bitcoin (BTC) has had a difficult time maintaining above the critical psychological level of $20,000. Along with other risky assets like stocks, the largest cryptocurrency has been under pressure from hawkish comments made by monetary policymakers.
The price of bitcoin fell to as low as $18,559 on Tuesday, marking the lowest level since June 30.
In a speech delivered on Wednesday at a banking conference in New York, Fed Vice Chairwoman Lael Brainard declared, “We are in this for as long as it takes to get inflation down.”
The Federal Open Market Committee will meet on September 21 for the first time since last month’s annual Jackson Hole Economic Symposium retreat in Wyoming, when it is expected to decide on the next rate hike.
The consumer price index, which is scheduled to be issued next week for the most recent reading on inflation, will be the focus of all attention because Fed Chairman Jerome Powell stated in July that subsequent decisions would be data-dependent.
The labor market has begun to slightly cool, according to last week’s Labor Department jobs report for August.
In a speech on Wednesday, Cleveland Federal Reserve President Loretta Mester said, “I will need to witness several months of reductions in the month-over-month readings before I conclude that inflation has peaked.”
Mester stated that the Fed needs to boost rates beyond 4% and maintain them there for a time. She added that she will be “guarding against declaring victory over the inflation beast too soon.”
Over the past week, the probability of a 75 basis point, or 0.75 percentage point, rate increase has grown in the eyes of the market.
The Fed “appears to be on a course” for another 0.75 percentage point rate increase, according to a Wednesday Wall Street Journal report.
In recent rate-hiking cycles, the Fed has typically increased rates by 0.25 percentage points; this is about three times as much as usual, showing how critical the issue of inflation has become in the minds of top policymakers.
The Bank of Canada hiked its benchmark interest rate earlier on Wednesday by 75 basis points to 3.25%, the highest level in 14 years. The European Central Bank is anticipated to take similar action on Thursday.
There is currently a 78% possibility that the Fed will raise interest rates by 75 basis points, according to the CME FedWatch Tool, which displays how traders of financial futures contracts are wagering on the central bank’s next action.
With this change, the federal funds rate would range from 3% to 3.25%.
Many traders are betting on a continued decrease in bitcoin’s price, which is evidenced in the record-high degree of speculative activity witnessed in the market for cryptocurrencies.
Don Kaufman, a co-founder of TheoTrade, said on CoinDesk TV, “With rising rates, you’ve got this carry trade that all of the miners employ as well, and it’s unraveling in front of our eyes.”
“Some of the trade prospects that were available a few months ago are harder to support.
When the yield on the two-year Treasury note is 3.5%, Kaufman remarked, “In a climate where interest rates are rising, it may not be worthwhile.”
Are you sure you want to carry that overnight? and it unravels a lot of crucial trades in the cryptocurrency market?”
