The rate cut has been postponed due to the return of inflation across the Atlantic. What impact on bitcoin?
The Fed recognizes that inflation is rising
Bad news, the Fed press release recognizes for the first time that inflation is resurfacing.
“There has been no further progress towards the 2% inflation target in recent months”can we read in the communicated.
Governors reiterated verbiage aimed at defusing growing expectations for a rate cut:
“The Fed will carefully evaluate new economic data, the evolving outlook, and the balance of risks before considering a policy rate change. »
Making a 180-degree turn, journalists are now wondering if inflation might not instead encourage the Fed to raise its key rate, which remains at 5.50% for almost a year.
The possibility of a “rate hike” was mentioned eight times, but Jerome Powell was not enthusiastic about the idea. The Chairman of the Fed believes that it is “unlikely that the next change in the key rate will be an increase”.
“But from what we observe, it is indeed quite clear that our restrictive monetary policy needs more time to do its work”he added.
“We don't like to react to data from one or two months. But it's a full term [de hausse de l’inflation]. We take note. It will probably take us longer to be sure that we are on a sustainable trajectory towards 2% inflation.”
In short, the prospect of a rate cut in 2024 is receding.
Everything will depend on the price of a barrel of oil, and therefore on the evolution of geopolitical tensions, particularly in the Middle East…
Powell's long pause and body language tell you everything you need to know. Something is brewing and he knows it. »
Inflation, QE and bitcoin
If the reduction in key rates is postponed until later, the Fed has still announced that it will reduce its balance sheet more slowly.
As a reminder, the American Central Bank holds $5.7 trillion in Treasury bonds. The latter were acquired via the famous QE (Quantitative Easing). To which are added 2,400 billion in mortgage debt (MBS).
More than $1.5 trillion in Treasury bonds have been sold since the start of QT (Quantitative Tightening). And about 300 billion MBS.
Yesterday, the Fed said its balance sheet reduction will slow starting in June:
-Treasury bill sales will drop from $60 billion to $25 billion per month.
-Sales of securities backed by MBS will remain unchanged at 35 billion per month.
By the way, the Fed pays the interest collected on these Treasury bonds to the US government. The fact that the Fed is offloading its Treasury Bonds means that the US government finds itself paying more interest. Which results in more borrowing.
Overall, the Fed's statements are therefore not likely to push the markets up.
What impact on bitcoin? It should logically be bullish. If inflation remains persistent year after year, bitcoin and its absolutely finite money supply can only gain popularity among the masses.
Bitcoin will be the big winner as the world realizes that inflation will no longer return to a cruising speed of 2%.
Our inability to generate cheap energy to increase productivity bodes ill… Hodl!
Maximize your Tremplin.io experience with our 'Read to Earn' program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
