Federal Reserve January Meeting Indicates Inflation Rate Hike For March
The Federal Reserve had its January monetary policy meeting, indicating that a potential rate hike could come in March. The major stock market averages initially jumped around 2 p.m. ET, when the Fed released its policy statement, but retraced back down as Chairman Jerome Powell answered questions from reporters.
The major averages hit new session lows at around 3:20 p.m. ET, as traders assessed Fed Chairman Jerome Powell’s comments on monetary policy and the potential for even more inflation going forward.
The Dow was down about 350 points, or 1%. The S&P 500 and Nasdaq Composite dipped 0.9% and 0.7%, respectively.
Meanwhile, rates rose as Powell spoke. The benchmark 10-year yield traded around 1.83%, and the 2-year rate traded at 1.1%.
Powell said that there’s a risk that inflation will not decline back toward its pre-pandemic levels any time soon, and that the rise in prices could accelerate.
Powell said:
“Inflation risks are still to the upside in the views of most FOMC participants, and certainly in my view as well. There’s a risk that the high inflation we are seeing will be prolonged. There’s a risk that it will move even higher. So, we don’t think that’s the base case, but, you asked what the risks are, and we have to be in a position with our monetary policy to address all of the plausible outcomes.”
Powell also mentioned that supply chain issues were taking longer to be resolved than the Fed had originally anticipated.
Fed Chairman Jerome Powell said it will take a while for the central bank to unwind its massive balance sheet going forward.
Powell said:
“The balance sheet is substantially larger than it needs to be. There’s a substantial amount of shrinkage in the balance sheet to be done. That’s going to take some time. We want that process to be orderly and predictable.”
What does the Fed meeting outcome mean for crypto?
According to crypto market analyst Nicholas Merten that if the Federal Reserve announces that it intends to raise interest rates beyond 0.25% to perhaps 1%, negative sentiment will likely affect both crypto markets and equities.
“If the Federal Reserve does actually stick to its word, if it actually goes about hiking interest rates this go-around and showcases that in this meeting or the next few meetings that it’s not kidding around, it doesn’t matter what asset markets think or how they react… it will cause further sell-side pressure in Bitcoin… and in equity markets, which have already taken a hit.”
The analyst also said that Bitcoin (BTC) really is at a critical crossroads.
“The Fed meeting is probably going to be the spearhead that leads us towards either rallying up toward that $150k, $200k range that we’ve been talking about in the past or is going to drag us down into what might potentially be a bear market. Not just for crypto, but for all assets alike.”
