The minutes from this monthโs FOMC meeting of Unitedย States Federal Reserve policymakers were just released, revealing the bank to be divided on the need for further interest price hikes.
Digitalย currency, forex, Unitedย States equity and Unitedย States bond markets didnโt see much of a reaction to the minutes, the tone of which were broadly as expected.
In recent weeks, some Fed officials suggested they favor further tightening, whilst others, including Fed Chair Jerome Powell, have intimated they favor a pause in interest price hikes.
The Unitedย States monetaryย authority lifted interest prices by 25 bps to 5.0-5.25 percent earlier after its 2-3rd May meeting, a 10th consecutive price hike that has seen Unitedย States interest prices jump 5.0 percent in just 14 months.
The Fed started raising interest prices aggressively last March to dampen an unexpectedly prolonged surge in Unitedย States price pressures, with this hawkish pivot tilting equity and cryptocurrency markets into an ugly bear market in 2022.
โ Plentyย of participants pointedย outย that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,โย the minutes published on Wednesday stated.
โ Several participants commented that, accordingย to their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings,โ the meetings continued.
Unitedย States interest price future markets were last pricing about a 30 percent chance that the Fed hikes interest prices against at its 14th June meeting, unchanged from one day ago, reportsย by the CMEโs Fed Watch Tool.
Next Data Key to Whether Fed Hikes Onceย more or Holds
Onย theย otherย hand, those expectations could quickly shift, and any such shift could have implications for the near-term outlook for cryptocurrency markets.
โ Numerous participants focused on the must retain optionalityโ the minutes said.
Toย putย itย anotherย way, numerous Fed policymakers want inย orderย to respond to incoming data โ if next inflation and jobs market prints come in hot, then more are likely to favor another price hike, while if these data releases surprise to the downside, more are likely to favor a pause in price hikes.
Traders will thus be closely monitoring next Core PCE inflation data for April out this Friday, ahead of the release of April job openings data, May ISM survey results and the official May jobs report, all out next week.
Consumer Price Index (CPI) data out on the 13th of June will then form the final piece of the data puzzle for the Fed ahead of next monthโs meeting.
As far as digitalย currency markets are concerned, major blue-chip names like Bitcoinย (BTC) and Ether (ETH) would perform better in an environment where Fed tightening bets are easing rather than ramping up.
Nonetheless, strong data and hawkish Fed speak (i.e. policymakers calling for further tightening and pushing back against market expectations for price cuts thereafter this year) have weighed on cryptocurrency in recent weeks.
Bitcoin, last in the low-$26,000s, is down over 15 percent versus its earlier yearly highs over $31,000, while Ether, last trading just under $1,800 is down a similar margin from its earlier yearly highs in the mid-$2,100s.
Potential Unitedย States Default a Possible Upside Catalyst
1 wild-card that could change everything for the Fed, the economy and digitalย currency markets in the weeks ahead is if Congress is unable to reach a deal to raise the debt ceiling, resulting in an unprecedented Unitedย States Government default.
Negotiations betwixt the Democrats and Republicans, who want to force the Government to cut spending in exchange for support to raise the debt ceiling, continue.
This isnโt the 1st time that Congress has cut it close regarding lifting the debt ceiling, so the marketโs base case asย ofย now isย theย factย that a last-minute deal will be done.
Onย theย otherย hand, economists at JPMorganย Chase & Co on Wednesday stated that the Unitedย States Government runs out of cash before a deal is done is asย ofย now around 25 percent and rising.
A Unitedย States Government default, even if quickly rectified (i.e. via a deal being reached to quickly pay back the defaulted on loans), could have severe ramifications for the Unitedย States Government, Unitedย States economy and worldwide financial order.
The Unitedย States governmentโs capacity to borrow canย potentially be irreparably damaged (i.e. interest prices becoming structurally higher), the credit crunch in the Unitedย States banking system which began back in March as regional banks started collapsing canย potentially worsen and any spending cuts the Government is forced to agree asย well would amount to fiscal tightening, weighing on economic growth and raising fall risks.
The whole ordeal would likewise weaken confidence in the Unitedย States dollar and the fiat currency-based financial order more broadly.
That would spur substantial demand for hard-money alternatives like gold, but likewise bitcoin.
