Federal Reserve Expects To Maintain Rates For 2023

January 9, 2023 7:49 pm Comments

It looks like the Federal Reserve is still determined to continue fighting inflation for the year of 2023 and this will have major impacts on all financial markets.

Speculators believe that the rates will either stay the same or continue to go higher until the Fed sees the inflation drop significantly.

Experts have also commented on this and warned that there would be drastic consequences if the Fed decided to lower the rates too early which would lead to even higher levels of inflation.

As for what this means for the crypto markets which has been in a bear market for sometime, assets may start to dip in the short term as the crypto market has been closely correlated to the stock market last year.

Whether or not the crypto market will start to decorrelate away from traditional markets is still a possibility in the future.

DeCrypto.co reports:

When the Federal Reserve raised interest rates to get inflation under control, investors generally sold U.S. equities, as well as Bitcoin and other digital assets in a bid to shift “risk.”

This year might be no different: stocks and almost every crypto token and coin dropped on the news that the Fed would not step down from its aggressive monetary policy.

“With inflation still well above the Committee’s longer-run goal of 2 percent, participants agreed that inflation was unacceptably high,” the minutes said, adding that an “unwarranted easing in financial conditions” would “complicate the Committee’s effort to restore price stability.”

The minutes also noted the collapse of digital asset exchange FTX—but said it didn’t have a serious effect on the wider financial system.

Theoretically, rates of high inflation could one day encourage investors to diversify their portfolios and include more crypto assets.

This is because many assets like BTC and XRP and limited in supply which makes it easier for the asset to maintain its value.

On the other hand, fiat currencies these days are continuously being printed which drive the value of the currency to go down.

As a result, more and more investors may one day see it as a way to hedge against the rampant inflation if the situation ever becomes that bad in the future.

The Federal Reserve needs to make sure that it does not lose the confidence of the public and a failure to keep the inflation under control due to weak policy can make the situation spiral out of control this time.

CNBC reports:

Following the meeting, Fed Chairman Jerome Powell indicated that while there has been some progress made in the battle against inflation, he saw only halting signs and expects rates to hold at higher levels even after the increases cease.

The minutes reflected those sentiments, noting that no FOMC members expect rate cuts in 2023, despite market pricing.

Markets currently are pricing in the likelihood of rate increases totaling 0.5-0.75 percentage point before pausing to evaluate the impact the hikes are having on the economy. Traders expect the central bank to approve a quarter-point increase at the next meeting, which concludes Feb. 1, according to CME Group data.

Current pricing also indicates the possibility of a small reduction in rates by the end of the year, with the funds rate landing around a range of 4.5%-4.75%. Fed officials, however, have expressed doubt repeatedly about any loosening of policy in 2023.

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