The stock markets and Bitcoin’s price performance might be hitting a bumpier road after the next Consumer Price Index release. During the year the Fed has been clear about an upcoming tapering, and now that new –and higher– CPI metrics are expected, the taper is likely to fasten its pace and the markets to suffer.
Expect the central bank to begin reducing its monthly net asset purchases by $10 billion in Treasury securities and $5B for agency mortgage-backed security. This has raised fear over the traditional and crypto markets as prices are expected to be affected by a reduction in the global market’s liquidity. In previous tapering situations, yields have fallen and prices for government bonds risen.
Costumers who have experienced the rise in prices this year have low expectations for the Consumer Price Index’s results to come. The red signals send a reminder of Jerome Powell’s previous words: “we are prepared to adjust the pace of purchases if warranted by changes in the economic outlook,”
Similarly, James Bullard, President of Federal Reserve Bank of St. Louis, had said in an interview with Bloomberg that they could “move faster” and speed of the taper “if it is appropriate”.
The committee should be more hawkish in their next two meetings to ensure that inflation risks are managed appropriately.
Bullard’s comments followed the U.S. Labor Department October’s report of a 6.2% yearly rise in the consumer price index, a 31-year high. This “further aggravated the market’s concerns about inflation, voices for accelerating Taper has become increasingly loud” said Huobi Research.
While it isn’t the Feds first policy retreat, it is considered the most important. This is because it marks the end of unmatched support for financial markets. The general question now is whether it will look “appropriate” after the CPI report. The experts are predicting that the market will turn red if this happens.
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Was The Bitcoin $100k Vision Realized?
At the beginning of November, Bitcoin dipped –falling almost by $2000– as the Federal Reserve announced it would gradually reduce the bond purchase. Powell had accepted that U.S. inflation numbers are not “transitory”, thus suggesting accelerating the taper as he saw a stronger economy and hot inflation.
The Fed is considering wrapping up things a bit earlier than planned. On December 14-15, the Fed’s next two-day meeting will determine if it will increase its taper rate to $30 billion per month. While a faster taper might be possible to combat the rising inflation rate by increasing interest rates sooner, this may lead markets to experience high volatility.
Louis Navellier, one of Wall Street’s famous growth investors, had commented:
The Fed has begun to taper, which should cause a correction in the risk assets of which bitcoin is part. The more the Fed tapers, the more volatility we should see in both stocks and bonds — and yes, bitcoin, too.
Huobi Research explained that the projection behind the previous expectation for Bitcoin’s price to flirt with $100k by the end of this year “ignored the impact of external macro changes on the market.”
The Huobi report claims “the extremely loose monetary policies” –the central bank’s release of liquidity– during times of Covid was also carrying Bitcoin’s price uphill –as well as other risky assets– to the remarkable surge we saw this year. That also means the taper is “the turning point of global liquidity growth”.
As we observed during March last year, due to the shortage of market liquidity, Bitcoin price dropped by nearly 50% in one day…
As inflation fears have become a problem, so has the outlook for future high-risk asset prices. However, this wouldn’t be Bitcoin’s first low, and we have seen it bounce back before.
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