Fed slowdown expectations also benefit Bitcoin
Stock and bond markets are not the only ones to benefit from the prospect of a slowdown in the Fed’s monetary tightening. The cryptocurrency market has also been gaining momentum since the start of the week, with bitcoin even jumping over 7% since Tuesday.
This speculation of a slowdown in Fed monetary policy tightening could continue over the next few sessions, pending the next Fed policy meeting next week. However, Fed Chairman Jerome Powell may dispel that hope given still extremely high inflation and accelerating core inflation.
Admittedly, the Fed should start slowing down monetary tightening in the coming months, but this was already announced by the FOMC in September. As such, this is not a true “pivot” for the Fed as the central bank will continue to raise its rates to bring them into its target range of 4.50% to 4.75% by the end of the first quarter of 2023.
We will have a real “reversal” if the Fed decides to raise rates less than expected, which is unlikely as long as core inflation remains at 40-year highs and the unemployment rate remains at higher levels of historical lows.
As such, the market recovery is likely to be only temporary and limited before another downturn hits as economic risks continue to be tilted to the downside by the global energy crisis, soaring financing costs and obstacles to restarting the Chinese economy.