The crypto and legacy markets could see a spike in volatility in a few hours, according to Jeremy Siegel.
Jeremy Siegel, the Wharton School of Business Professor, told CNBC’s ‘Closing Bell: Overtime’ that “it will be a disaster” if the United States Federal Reserve (FED) increases rates by 50 basis points on February 1, 2023.
FED’s Need to Increase Interest Rates by 0.25%
The Professor insisted that if the FED mentions any figure “that’s not 25 basis points” during today’s meeting, the effects would be far-reaching.
Besides the interest rate changes, Siegel would like the Fed to reword its statement and explicitly mention that its monetary policy decisions in recent months have been working. He adds that it would be refreshing for the Fed to reassure the market that they are near the end of their tightening cycle.
Legacy and crypto market participants expect the US central bank to slow down rate hikes in the coming months. However, the hope of traders and investors could be dashed if policy makers assess market conditions differently and see the need to keep rates high.
Economists expect the Fed to raise interest rates by 25 basis points to 4.75%, up from 4.50% on February 1, 2023. The bank began raising interest rates in January 2022. Over the months, the prevailing interest rate in the United States increased from 0.25% in January 2022, to 4.50% at the end of 2022.
Falling Inflation, Rising Crypto, and Bitcoin Prices
Inflation is one of many factors, including employment conditions, that the Fed considers when determining interest rates. The effects of the COVID-19 pandemic, as well as the need for the government to intervene and protect its citizens, caused governments to cut rates to record levels.
According to Siegel, inflation was inevitable with “money pouring in over and over again,” and it did so significantly in 2021 and 2022. Recent readings show that the Consumer Price Index (CPI), a metric tracking pressures of consumer goods prices and a gauge for inflation, has slowed down after hitting multi-year highs.
In December, inflation fell to 6.5%, making it the sixth consecutive month of falling consumer prices. It peaked at 9.1% in June 2022 before falling to 6.5% in December, 1% less than January 2022, when inflation stood at 7.5%.
Bitcoin prices briefly rebounded in December 2022, bottoming out after losing more than 60% in thirteen months since November 2021, in reaction to changing macroeconomic conditions, inflation being the most important.
In recent weeks, Bitcoin prices have been rising, as the crypto market expects inflation to cool and the Fed to ease its tightening in 2023.
For this reason, the way the Fed acts could shape the short-term price formation for Bitcoin. The coin pulled back sharply from around $24,000 on January 30, but leveled off yesterday.
By Audy Castaneda
