Minutes released by the Fed’s Open Markets Committee meeting in September reveal forecasts of continued rate hikes and sluggish GDP growth.
Bitcoin price held steady following the release of the Federal Reserve’s September meeting minutes, showing that the agency is unlikely to consider a short-term easing of the fed funds rate.
The minutes, released on October 12, 2022, reveal that the Fed will continue its tightening strategy as higher-than-expected inflation figures hit low-income households.
Fed Remains Committed to Fighting Inflation
Despite previous increases in the Funds rate, which is now between 3% and 3.25%, the committee noted that inflation was slowly receding, and high figures were expected in the short term.
This was due to several contributing factors, including a tight job market and persistent supply chain disruptions.
In August 2021, the consumer price index was 8.3% higher than a year earlier, while core CPI inflation was 6.3% over the same period, significantly higher than the 2 year target. % of the Federal Reserve.
In the medium term, members expected inflation to decline, and advocated slowing the Fed’s tightening, as they watched the effects of the agency’s policy on the economy.
At some point after that, the funds rate could be kept at a “restrictive enough” level of around 4.6%, to allow inflation to reach the 2% target.
All of this, the report notes, comes at the cost of slower economic growth and gross domestic product, but would achieve the Committee’s “goals of maximum employment and price stability.” The committee expects US GDP to grow 0.2% in 2022 and 1.2% in 2023.
It is worth remembering that back in 2019 and 2020, the Fed’s monetary policy was expansionary, and especially in 2020, money printing was accentuated to counteract the slowdown due to the Covid 19 pandemic. In that period, inflation was not seen as a threat and the Fed he insisted that it would in any case be “temporary.”
The Fed lowered its expectations for economic growth for 2022 from 1.7%, which it had forecast last June, to 1.5%. They also estimate that inflation will close in 2022 at 5.4%.
The committee recognized that its predictions were fraught with uncertainty and represented the best case scenario.
In the minutes of the Fed meeting in July, participants expressed concern that the lag between policy reforms and the market response could result in monetary policy being too aggressive, and that it was important for data to guide their decisions. .
These dovish sentiments were echoed earlier this week by Federal Reserve Vice Chairman Lael Brainard, whose comments about a more data-driven approach sparked a brief rally in stock prices.
However, Citi economists cautioned that this data-driven approach is likely to continue to be used in the context of aggressive Fed tightening.
Investors Possibly Dumping Their Crypto If Unemployment Rises?
A gradually declining funds rate could mean that crypto investors do not feel the need to shed their assets quickly.
However, with Fed policy set to continue in the near term, albeit using a data-driven approach, this could gradually increase unemployment and push the US economy into recession.
This unemployment, in turn, could mean investors are less likely to hold cash in notoriously volatile stocks and assets like Bitcoin, leading to significant price declines.
For the time being, however, Bitcoin was largely unaffected by the release of the Federal Reserve meeting minutes. It was up 0.7% in intraday trading, while Ethereum showed a 1.3% gain.
By Audy Castaneda
