Fed Expects High Rates to Continue, Increased Unemployment a Reality

Bitcoin’s price remained steady following the release of minutes from the Federal Reserve’s Sep. meeting, showing that the agency is unlikely to consider short-term easing of the Federal Funds Rate.

The minutes, released on Oct. 12, 2022, reveal that the Fed will continue its tightening strategy as higher-than-expected inflation numbers batter lower-income households.

Fed remains committed to fighting inflation

Despite previous increases in the Funds rate, which now lies between 3% and 3.25%, the committee observed that inflation was receding slowly, and high numbers were expected in the short term. This was due to several contributing factors, including a tight labor market and persistent supply chain disruptions.

In Aug. 2021, the consumer price index was 8.3% higher than a year earlier, while core CPI inflation was 6.3% over the same period, significantly higher than the Fed’s 2% target.

In the medium term, members expected inflation to taper and advocated slowing down Fed tightening while observing the effects of the agency’s policy on the economy. At some point after that, the funds rate could be kept at a “sufficiently restrictive” level of around 4.6% to allow inflation to reach the 2% target.

All this, the report notes, comes at the cost of slower economic growth and gross domestic product but would achieve the “Committee’s objectives of maximum employment and price stability.” The committee expects the U.S. GDP to grow 0.2% in 2022 and 1.2% in 2023.

The committee acknowledged that their predictions were fraught with uncertainty and represented a best-case scenario.

In minutes from the Fed’s meeting in July, meeting participants expressed concern that the lag between policy reforms and market response could result in a monetary policy that was too aggressive and that it was important for data to drive their decisions. These dovish sentiments were echoed earlier this week by Vice-Chairman of the Federal Reserve Lael Brainard, whose comments about a more data-driven approach sparked a brief rally in stock prices. But, economists from Citi cautioned that this data-driven approach will likely still be used within the context of the Fed’s aggressive tightening.

Could investors dump crypto as unemployment rises?

A gradually decreasing funds rate could mean that crypto investors don’t feel the need to dump their assets in a rush.

However, with the Fed’s policy set to continue in the near term, albeit using a data-driven approach, this could gradually raise unemployment and push the U.S. economy into a recession. This joblessness, in turn, could mean that investors are less likely to keep cash in equities and assets like Bitcoin that are notoriously volatile, leading to significant price dumps.

For the time being, though, Bitcoin was largely unaffected by the release of the Fed’s meeting minutes. It was up 0.7% in intraday trading, while Ethereum showed an increase of 1.3%. 

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here

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