Federal Reserve Expects Inflation To Decline In 2023 – Effects on Crypto?• February 12, 2023 11:42 am • Comments
Federal Reserve chair Jerome Powell just shared his recent thoughts on what will happen to inflation in the year of 2023.
Powell states that he sees that there will start to be declines this year due to the fact that the Fed is expected to continue steady rate hikes for the rest of the year.
As far as what this means for the crypto industry, it is still unknown as it can either correlate to what the stock market does or this may be the year where the crypto markets start to decorrelate.
Historically, the stock market will move in a bearish direction as a result of increased hikes so many are wondering if risk assets like crypto will do the same thing.
With that being said, there are many that are claiming that the crypto market has already reached its lows and that a bull run will start soon.
Recent sell-off in equities and crypto after #FOMC meeting. #FED recognizes disinflation but Powell warns of premature victory in inflation war. Tuesday's #CPI reading may surprise investors. pic.twitter.com/Czxu23iqIS
— Sad Cat Capital (@sadcatcapital) February 12, 2023
The fight against inflation dominated headlines throughout 2022, with the Fed executing a year-long plan to bring the rate down. Consecutive interest rate hikes are still occurring, with Powell not indicating a stoppage, as the bank targets 2% inflation in the coming years.
The Federal Reserve has shown a clear mission throughout the past two years — fight rising inflation by any means necessary. Today, in a conversation with the media, Fed chair Jerome Powell stated his expectation that 2023 will show “significant declines in inflation.”
In a quote reported from CNBC, Powell was clear on his optimism. “The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of the economy,” Powell stated.
Although he was clear on his perspective of hopefulness, he didn’t shy away from reality. Stating, “But it has a long way to go. These are very early stages.”
At the moment, it has been recorded that inflation is currently sitting around 6.5% and the Fed’s aim is to get that close to 2% in the next two years.
Of course, going from 6.5% to 2% is an extremely long process which means that the crypto markets will likely take a long time to react to the Fed’s actions.
More likely, it will be a gradual process and inflation is only going to be one of many factors that determine what the price of Bitcoin or other major digital assets will do.
After all, the industry has now expanded globally and stands to benefit from inflation concerns all around the world due to the nature of having limited supply unlike fiat currencies.
"We expect significant progress on inflation this year," Federal Reserve Chair Jerome Powell said this week. pic.twitter.com/4N3vFnjGD5
— Yahoo Finance (@YahooFinance) February 12, 2023
“We need to be patient,” he said. “We think we’re going to need to keep rates at a restrictive level for a period of time before that comes down.”
Powell’s first mention of “disinflationary” trends was in his post-meeting news conference last Wednesday. Markets latched onto the term and briefly rallied before turning volatile over the last several sessions.
Powell said he expects inflation will cool but at a gradual pace.
“Our message [at the last meeting] was this process is likely to take quite a bit of time. It’s not going to be smooth,” he said. “It’s probably going to be bumpy, and we think that we’re going to need to do further rate increases, as we said, and we think that we will need to hold policy at a restrictive level for a period of time.”
After Powell spoke this week doubling down on rate hikes until inflation hits 2% the markets stuttered to end the week down across the board. Next weeks CPI could bring a surprise to the downside or be a Valentines day massacre for the markets#Powell #FOMC #Bitcoin
— Financial Summit (@FinSummit) February 12, 2023
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