Central banks, stocks and cryptocurrencies. While Bitcoin (BTC) and cryptocurrencies have their own cycles of ups and downs, crypto assets, of course, remain tied to the macroeconomic context. Moreover, the latter is more than feverish, with a desperate struggle of central banks with the onset of hyperinflation, which they themselves created by mass printing money. The upcoming decisions of the US Federal Reserve System (FRS) are of particular concern to financial market participants.
The Federal Reserve: will it raise or not raise the key rate?
Print money supply to make up “at any cost” for losses (sometimes total) due to extreme restrictions related to the Covid crisis. This is an idea that turns out to be very bad in the long run. Indeed, these fiduciary currency surpluses, combined with the war in Ukraine, are causing more than alarming price inflation.
With inflation at a record 9.1% in June compared to the rolling year in the United States, it is clear that the Federal Reserve has already raised its key rates by 0.75 points on June 15, 2022. On Wednesday, July 27th, there’s a good chance it’s going to be fucked up.
Indeed, according to the Financial Times (FT), in particular, investors expect the Fed to raise the key rate again, probably by another 0.75 points. These rates will then be adjusted to range from 2.25% to 2.5%.
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Stock markets are grey, cryptocurrencies are not leading
These rate hikes mean that investors tend to move away from so-called “risk” assets (going into a risk-averse state in the market) such as corporate stocks and cryptocurrencies.
However, in anticipation of the Federal Reserve’s decision on Wednesday, stocks, especially European stocks, began to show signs of volatility. According to the FT, euro zone corporate stocks first fell at the open of the market, then recovered slightly and returned to opening prices.
If the Fed raises rates on Wednesday, fears of hyperinflation will recede. But if these rate hikes continue too long/hard, they could lead to a “deeper and longer slowdown” in the economy, said the macroeconomist quoted by the FT. Indeed, investment in companies – and in crypto projects – would be much more cautious, slowing down growth and innovation.
The US Federal Reserve, like many central banks, including the ECB in Europe, is teetering between two sticks of dynamite. On the one hand, to keep the economy on life support due to the latest Covid restrictions (by disproportionately increasing its fiduciary money supply), on the other, to prevent inflation by raising its key rates. And all this without the risk of a stock market crash that would make the 2008 crisis look like a cakewalk. Until then, we’ll have to hold our breath until the Fed does its thing.
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