Dovish Fed Remarks Send a Message to Bitcoin Holders Too (UPDATED)
With the US Federal Reserve (Fed)’s Federal Open Market Committee (FOMC) signaling continued economic stimulus, crypto holders may be in for another run higher as it seems that the traditional market just got what it wanted – US stocks rose, dollar fell on dovish Fed remarks. (Updated at 18:30 UTC: updates in bold.)
The Fed said that it “is committed to using its full range of tools to support the US economy in this challenging time” and it decided to maintain the target range for the federal funds rate at 0 to 1/4 percent.
“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” it said.
Also, the Fed said that in order to support the flow of credit to households and businesses, over coming months it will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace. The central bank expects that this will sustain smooth market functioning and foster “effective transmission of monetary policy to broader financial conditions.” In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations.
While the Fed was not expected to announce any major changes to its monetary policy today, the meeting was still seen as important for the traditional financial markets as players were largely expected a further easing of monetary policy to help markets – and in turn the larger economy – through the COVID-19-triggered downturn.
And with the traditional financial markets more or less demanding monetary policy support – which also may include ‘money printing’ – bitcoin (BTC) holders may also have something to look forward to as excess liquidity finds its way to scarce assets such as bitcoin and gold.
It is important for the Fed to sound “very dovish” today, Priya Misra, global head of rates strategy at TD Securities told the Financial Times, adding “the Fed knows that the market is going into this meeting with expectations. They need to feed it with something.”
“Dovish” might mean an easy monetary policy from the central bank, something which in theory should benefit hard assets. Conversely, a hawkish central bank focuses on limiting the supply of currency, which would typically strengthen fiat currencies and weaken hard assets like gold, silver, and bitcoin.
A similar expectation was also voiced by Ethan Harris, head of global economic research at Bank of America, who told Marketwatch that certain new tools may also be on the table for the Fed, and that the most likely action would be to publicly pledge to keep interest rates at zero until inflation reaches or moves above its 2% target.
“I think there is a good chance that it comes at some point, either in the fall if the economy doesn’t pick up, or some point down the road,” Harris was quoted as saying. “Yield-curve control is much easier than trying to fiddle around with quantitive easing], and is the one macro tool that would show a significant step forward,” he added.
Further, it was also expected that Fed Chairman Powell could use the occasion today to put pressure on members of the US Congress to get them to pass a new round of stimulus checks to US residents.
According to the Financial Times, Democrats in the US House of Representatives have already passed a bill that would secure jobless benefits of USD 600 per week to Americans, while Republicans in the Senate are considering a USD 200 per week plan. An agreement between the two sides would lead to checks being sent out, with some of the money possibly finding its way into bitcoin and other cryptoassets.
At pixel time (18:28 UTC), BTC trades at USD 11,208 and is up by 2.5% in a day and almost 20% in a week.