Crypto prices have steadily retreated after minutes from a November Fed meeting revealed an expected slowdown in rate hikes. According to Federal Reserve officials, the apex bank would likely use lower interest rate hikes after assessing the U.S. fiscal landscape. Part of the minutes read:
“A number of participants observed that as monetary policy moved toward a sufficiently restrictive stance to achieve the Committee’s objectives, it would become appropriate to slow the pace of increase in the target range for the federal funds rate.”
In addition, the paper also states that an overwhelming majority of participants rule that a “slowing of the pace of increase would probably be appropriate soon.“
Crypto-currency prices temporarily recover as Fed hikes are scaled back.
The price level of the crypto market rose before the release of the Federal Open Market Committee (FOMC) minutes. The spike was due to the expectation that the U.S. central bank would reduce rate hikes due to slowing inflation. Although crypto asset prices rose, they returned to previous levels after the Fed’s rate hike update. As of yesterday’s news, bitcoin (BTC) was trading at $16,500, up about 5.5 percent. The total capitalization of the crypto-currency market stood at $781 billion.
Observers of the crypto-currency market widely expected the FOMC to reduce the hike to 0.5 percentage points in December. Such anticipation comes after the fiscal group embarked on four consecutive 0.75 percentage point hikes throughout the year. At the Nov. 1-2 meeting, the committee agreed that the Fed should reduce its rate hikes. Some officials also expressed concern about the impact that abrupt and unrelenting rate hikes could have on the economy and financial stability.
Markets wonder how far the Fed will go to successfully contain inflation
Market watchers were also looking for clues about how far policymakers may have to go in 2023 to continually contain inflation. Observers expect a few more rate hikes next year, followed by likely cuts as 2023 approaches.
FOMC officials also said the public should focus on the likely path of rates rather than the pace of further increases within the “target range“. However, as it stands, policymakers also believe that the smaller planned hikes would allow for assessments to be made prior to the subsequent December deliberations. These assessments include examining the impact of the succession of rate hikes and the overall health of the economy to date.
While Fed officials share the general sentiment that inflation may be coming down, they continue to preach caution. For example, last week, St. Louis Federal Reserve President James Bullard said the central bank still has work to do to contain inflation. Explaining that rate hikes have had only a limited effect on inflation, the voting FOMC member explained:
“So far, the change in monetary policy stance appears to have had only limited effects on observed inflation, but market prices suggest that disinflation is expected in 2023.”