The long-waited time has just come for the central bank of the U.S. Te FED established the interest rate and they paused the hikes for this month. It is the first halt in a very long time as the central bank started a hot war against the growing inflation in the U.S. dollar.
The meeting went pretty smoothly because nothing surprising happened and Powell had a speech over their vision. Actually, there are lots of messages to be taken from that. He insistently mentioned their expectation of 2% inflation over the next years and the unlikeliness of that projection due to some external factors such as the price of Brent Oil.
Time to discuss from obvious message to the hidden one.
2% Inflation Target is "Fanciful"
This is what many people say on TV because it is too hard to get back to this level after a long time of money printing and valuation of assets.
The FED is aware of the hardship of this target but they need to provide a vision and look determined to get over the problem of inflation. Actually, many people miss the point that 2% inflation is just a depiction of the intention of the FED. 2% is a sign that the economy will not be set free and the pressure on the industries will continue as the quantitative tightening continues.
Interest rates prediction by the FED members.
Slightly going higher through the end of the timeline compared to the previous meeting.
The reason of 2% target is to make people believe in the same vision with the FED to control the pace of increase in the prices of things as the hypothetical target inflation rate will be a shared vision of people as they embrace it.
Reality is Money Supply & Risk Appetite
Who would put their money into risky markets while the government offers 5% interest rate for their investment?
This is the saturation point that risky markets will lose all the potential investors and the investors try to make "safe" gains. The extreme low volume and the depression in the market can be the best depiction of what happens when both interest rates go high and the money is drained by the cental banks.
Under normal circumstances, the people who get greedy push the markets higher.
Yet, there is one unwritten rule: When the central banks are greedy to collect all money in the economies, there is no greed left for the others.
This is not an exclusive event for the FED, when you look at the chart above, the world is thirsty for some money to circulate and revive the economies. Actually, this is the way to deal with inflation
- Lower the pace of circulation of money
- Force sellers to keep the price stable and lower as they have debt to pay
- Force buyers to think 1000 times before they buy something under the risk of recession
- Drain money and increase the interest rates
This is the best and most effective recipe that central banks use to cool down the economies. Meanwhile, we cannot expect an astonishing bull market in stocks or crypto markets.
If your investment is majorly in crypto, we may need to focus on what happens in the price of Bitcoin before focusing on the alts.
Obviously, BTC is still above the 200-week moving average and the high risk conditions in crypto is still a big threat to the crypto ecosystem (because it is a high risk / high return market). However, the ETFs, Halving and accumulation are good narratives to push the price to higher trading channel.
Q1 2024 will be a potentially x2 zone for Bitcoin unless Brent Oil and higher interest rates do not spoil the party. However, mega bull run may need to wait a bit more.
What are the points that attracted your attention in Powell's speech?
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