With the latest June Consumer Price Index data already released, the business community’s attention is now on the US Federal Reserve and its next FOMC meeting scheduled for the end of July.
Although inflation has slowed, there are still calls for a rate hike at the next meeting. The question is, what happens? $BTC In that case, will prices stagnate?
Is there a big macro test coming up?
Odds have fallen over the past week or so after June inflation data showed a sharp decline to 3.5%. This may be more misleading than it sounds, but given the fact that oil prices have risen in July due to the breakdown of the ceasefire, CME Fedwatch data shows that experts believe there is an 85% chance that policymakers will leave interest rates unchanged. In contrast, the probability of a 25 basis point increase is only 15%.
Those odds changed after Tuesday’s release of the Consumer Price Index (CPI), which showed weaker-than-expected results, increasing market expectations that the Fed would not pivot from its current strategy. Still, some figures continue to appear increasingly hawkish, such as new Federal Reserve Chairman Kevin Warsh and Dallas Federal Reserve President Rory Logan.
Rising interest rates are thought to be a hindrance $BTC It also includes other risk-on assets as investors tend to be more defensive. Rising borrowing costs make lower-risk investments such as Treasury securities more attractive, while reducing overall financial market liquidity.
The most recent major example of a Bitcoin crash following an aggressive Fed tightening cycle was in 2022/2023. However, today’s market is different from previous cycles.
intention $BTC Is it still a crash?
Much of the market’s reaction is likely to depend on whether the rate hike completely catches investors off guard. The market overwhelmingly expects interest rates to remain unchanged. An unexpected hike of 25 basis points, or even more threatening 50 basis points, could trigger a sharp decline across stocks, cryptocurrencies, and other risk assets.
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However, a long-term perspective provides a different perspective. If the central bank raises interest rates because local economies are still resilient and prove difficult to beat inflation, strong economic activity could continue to support corporate profits and institutional investment appetite. $BTC have proven in the past that they can recover quickly from macro shocks, especially if long-term demand is maintained.
Even though the market expects no interest rate changes, the situation currently looks quite fragile. But inflation remains above the Fed’s target and several policymakers are taking a more hawkish stance, which could lead to volatility if the Fed surprises investors with a rate hike in July.
