Crypto market prepares ahead of the meeting of the
US Federal Reserve Chairman Jerome Powell.
Source: a screenshot of the video, Youtube, CNBC Television
On Monday, the US Federal Reserve (Fed) will hold an unscheduled meeting to discuss interest rates, described by some as an “emergency meeting” and by others as a “fairly regular event.” Regardless, the Fed’s unexpected warning sparked debate in the crypto market that the central bank would announce a rate hike and, if so, how high and how many there will be this year.
The unscheduled meeting, which the Fed says will be held under “expedited procedures”, is set for Monday at 11:30 am EST (4:30 pm UTC). According to the Fed’s public notice, interest rates are the only item on the agenda.
Speculation in the crypto community about the Fed meeting
The warning led to a flurry of speculation in the crypto community about what the Fed plans to do, given the market expectation that the Fed’s first rate hike would not arrive until mid-March.
In particular, the unscheduled meeting was not a complete surprise to some, with for example Sven Henrich, the founder of the trading and analytics website NorthmanTrader, saying upfront that the best thing the Fed can do to restore credibility is “a surprise rate hike before the next Fed meeting”
Henrich called for a “rate hike next week” once the meeting was announced yesterday.
Expedited procedures closed Fed board meeting scheduled for Monday, February 14 to review and determine rates.
Rate hike next week?
– Sven Henrich (@NorthmanTrader) February 11, 2022
Marty Bent, the popular bitcoin (BTC) advocate and podcast host, said “the Fed has called an emergency meeting for Monday” and is “worried” about last month’s 7.5% inflation. He added that he believes the central bank will raise rates before its next meeting scheduled for March.
Likewise, Nik Bhatia, a finance professor at the University of Southern California and author of the popular bitcoin book Layered Money, also wondered if the Fed plans to raise rates on Monday, although he said it would be ” absolutely comical ”if he did.
Following up on his own tweet later today Bhatia seemed to conclude that no rate hike was to be expected, saying:
“No, they won’t increase on Monday, they made sure this rumor was rejected overnight.”
The US central bank has been criticized by many recently for “going around the curve” on rate hikes, with prominent institutional investors like hedge fund manager Bill Ackman saying last month that the Fed is “losing the battle over inflation “.
A similar sentiment was shared by Omar Slim, a wallet manager at Singapore-based PineBridge Investments. Slim already told Bloomberg last month: “The fact that they have gone on so long with the transient inflation narrative has really damaged their credibility and I think they need to catch up in terms of anticipating the curve.” He added that a 0.5% rate hike “is not out of the question” for the March meeting.
How many rate hikes will there be?
The common thought among analysts has long been that the Fed will raise rates by 0.25%, starting in March of this year. However, there has been considerable disagreement over how many times rates will have risen before the end of the year.
Investment banking giant Goldman Sachs is among the companies that have changed their minds about how many rate hikes will be recorded this year. Bloomberg reported today that the bank previously expected five hikes, but after yesterday’s higher-than-expected inflation reading, it now says seven are more likely.
The growing difference between interest rates and inflation, often referred to as the real interest rate, was also pointed out yesterday by popular analyst Lyn Alden, stating that the gap between the two is at its highest since 1951.