Crypto Market Braces for Volatile Week Ahead of Fed’s ‘Emergency Meeting’
The US Federal Reserve (Fed) is set to hold an unscheduled meeting on Monday to discuss interest rates, described by some as an “emergency meeting” and others as a fairly “regular occurrence.” Regardless, the Fed’s unexpected notice has sparked debate in the crypto community over whether the central bank will announce a rate hike — and if so, how high, and how many of them there will be this year.
The unscheduled meeting, which the Fed said will be held under “expedited procedures,” is set for Monday at 11:30 EST (16:30 UTC). And according to the Fed’s public notice, interest rates is the only item on the agenda.
The notice has led to a flurry of speculation in the crypto community about what the Fed is planning to do, given the market’s expectation that the first rate hike from the Fed would not come before mid-March.
Notably, the unscheduled meeting did not come as a complete surprise for some, with for instance Sven Henrich, the founder of trading and analysis website NorthmanTrader, saying ahead of time that the best thing the Fed can do to restore credibility is “a surprise rate hike before the next Fed meeting.”
“Rate hike next week,” Henrich followed up by asking once the meeting was announced yesterday.https://www.twitter.com/NorthmanTrader/status/1492054562949185539
“The Fed is calling an emergency meeting for Monday” and is “sweating bullets” over last month’s 7.5% inflation, said the popular bitcoin (BTC) advocate and podcast host Marty Bent. He added that he believes the central bank will raise rates before its next scheduled meeting in March.
The Fed is calling an emergency meeting for Monday. They are sweating bullets over the 7.5% CPI print and will likely move to raise rates before the next meeting.— Marty Bent (@MartyBent) February 11, 2022
It feels like the end game is upon us. Will rate hikes be enough to combat the public's collapse of confidence? pic.twitter.com/Uas14Icnfz
Similarly, Nik Bhatia, a finance professor at the University of Southern California and author of the popular bitcoin book Layered Money, also wondered whether the Fed is planning to raise rates on Monday, although he said it would be “utterly comical” if it did.
Following up on his own tweet later today, however, Bhatia appeared to conclude that no rate hike should be expected, saying:
“Nope, they will not hike Monday, they made sure this rumor was walked back overnight.”
The US central bank has been criticized by many recently for “falling behind the curve” on rate hikes, with heavyweight institutional investors such as hedge fund manager Bill Ackman saying last month that the Fed is “losing the inflation battle.”
A similar sentiment was shared by Omar Slim, a portfolio manager at Singapore-based PineBridge Investments. “The fact that they went on for so long with the transitory inflation narrative really hurt their credibility and I think they do need to catch up in terms of being ahead of the curve,” Slim told Bloomberg as early as last month. He added that a 0.5% rate hike “is not off the table” for the March meeting.
How many rate hikes will there be?
The consensus among analysts has long been that the Fed will raise rates by 0.25%, starting in March this year. However, there has been considerable disagreement about how many times rates will be hiked before the end of the year.
Investment banking giant Goldman Sachs is among the firms that have changed their view about how many rate hikes will be seen this year. The bank previously expected five hikes, but following yesterday’s higher-than-expected inflation reading it now says seven is more likely, Bloomberg reported today.
The increasing difference between interest rates and inflation – often referred to as the real interest rate – was also pointed out by the popular analyst Lyn Alden yesterday, saying the gap between the two is at its biggest since 1951.
Consumer price inflation came in hot today at almost 7.5% year over year.— Lyn Alden (@LynAldenContact) February 10, 2022
Official inflation currently has its biggest gap over short-term interest rates since 1951. People holding cash in a bank or T-bills over the past year lost over 7% of their purchasing power. pic.twitter.com/oh3lEFXVoX
Others, including the bitcoin evangelist and chief strategy officer at the Human Rights Foundation, Alex Gladstein, followed up by hinting that the deeply negative real interest rates could be intentional from the Fed’s side as a way to reduce the national debt.
Here’s an IMF paper recommending that governments consider “financial repression” (i.e. looting public savings by pinning interest rates below inflation) as a tool for reducing national debt in advanced economies: pic.twitter.com/g5cfZXtxda— Alex Gladstein 🌋 ⚡ (@gladstein) February 11, 2022
Meanwhile, economist Mohamed A. El-Erian, President of Queens’ College at Cambridge University, also commented, hinting that high inflation is now becoming a critical problem for the Fed.
“Having lost control of the narrative on inequality and inflation, the Fed faces further damage to its reputation due to their interaction: The most vulnerable segments of our society are being hit hard by inflation and also face the risk of an income shock due to a policy error,” El-Erian said on Twitter.
However, not everyone seems to think that the “expedited procedures” meeting is such a big deal, with one commenter on Twitter arguing that the meetings “appear to be regular occurrences,” and another calling it a “frequent procedural meeting that happened last on Jan 18th.”
“Yea I’m realizing that now…learn something new every day,” responded Brent Johnson, a well-known money manager and CEO of Santiago Capital.
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– How Global Economy Might Affect Bitcoin, Ethereum, and Crypto in 2022
(Updated at 15:44 UTC with a video.)