Bitcoin price has responded to yesterday’s FOMC Minutes release with a brief bounce to $16,990, only to return to the previous range of around $16,800 within 30 minutes shortly after. And this trend could continue in the coming weeks and months. Macro Analyst Alex Kruger fixed:
Welcome to the Pump and Whack Range Market 2023. Markets pump with falling inflation, and the Fed hits them.
The analyst based his opinion on a series of tweets from The Wall Street Journal’s chief economics correspondent, Nick Timiraos. The renowned journalist said that one of the key statements in the meeting minutes is that Fed officials are concerned that an “unwarranted easing of financial conditions” could “complicate” their fight against inflation.
That’s probably one of the reasons why the FOMC minutes contain almost no discussion of how much officials plan to raise interest rates at the February meeting. Instead, the minutes state that officials continue to face a difficult communication task and want to avoid a broad “unwarranted” easing of financial conditions.
While investors see a faster decline in inflation and respond with relief rallies, the Fed could, in turn, quell that euphoria. If the CPI data turns out to be much better than estimates, it could repeat the phenomenon of December 13-14, when the CPI data and the FOMC meeting occurred in quick succession.
In the lead up to and after the launch of the CPI data, Bitcoin price rose nearly 10% to $18,350, only to be pulled down by aggressive statements from the Federal Reserve. bitcoin later fell 12% at $16,280.
This “bomb and hit” trade could continue into January and February, as many experts predict another significant drop in inflation. CPI data for December 2022 will be released on January 12, 2023 at 8:30 am EST. Thus, positive numbers could trigger a rally, but with a tight expiration date.
The next FOMC meeting will take place from January 31 to February 1. The subsequent press conference will take place as usual at 2:00 pm EST on the second day. That’s when the Fed’s hawkish hammer could strike, sending the price of Bitcoin down again.
At press time, the price of Bitcoin was at $16,793, stuck in a tight range of $16,250 to $17,000 until December 17.
Bitcoin price in the run up to the next FOMC meeting
The meeting minutes also show that Fed officials agreed that the Fed needs to slow down its aggressive rate hikes (50bp in December). At the same time, he noted that “most participants emphasized the need to maintain flexibility and optionality when shifting policy to a more restrictive stance.”
This could suggest that Fed officials may be willing to return to a quarter percentage point hike at the next meeting, but also that they remain open to an even higher-than-expected final rate if high inflation persists.
The minutes also show that relatively few concerns were expressed at the December meeting that the central bank might go too far at this point and trigger a recession. Only a few participants acknowledged that the risks to the inflation outlook should have become more balanced, meaning that the risk of doing too little was no longer much greater than the risk of doing too much.
In response, Goldman Sachs commented that the “Fed either pivots too soon and goes dovish in a high inflation scenario which is quite bearish for the USD, helping gold, or pivots too late and causes a much larger recession than is currently priced in, resulting in a flight to safety which helps gold. ”
Featured image from Yahoo! Sports, Chart from TradingView.com
