The Bitcoin price has responded to yesterday’s release of the FOMC Minutes with a brief bounce to $16,990, only to revert back to the previous range of around $16,800 shortly after, within 30 minutes. This trend is likely to continue for the next few weeks and months. Alex Kruger, Macro analyst stated:
Welcome to the 2023 Pump and Whack market. The Fed whips it, while the markets pump for falling inflation.
An assortment of factors influenced the analyst’s opinion. tweets Nick Timiraos, chief economics correspondent for The Wall Street Journal. The renowned journalist said that one of the key statements in the meeting minutes is that Fed officials are concerned that an “unwarranted easing of financial conditions” could “complicate” their fight against inflation.
That’s probably one reason why the FOMC minutes contain almost no discussion of how much officials plan to raise interest rates at the February meeting. Instead, the minutes state that officials continue to face a difficult communication task and want to avoid broad “unwarranted” easing of financial conditions.
The Fed could stop investors from reacting to a faster fall in inflation by halting that euphoria. If the CPI data is better than expected, then the December 13-14 phenomenon, when the CPI data were released and the FOMC meeting took place in rapid succession, may be repeated.
In the run-up to and after the release of the CPI data, the Bitcoin price rose by almost 10% to $18,350, only to be brought back down to earth by the Fed’s hawkish statements. Bitcoin fell to $16,280, a drop of 12%.
This “pump and whack” trading could continue in January and February as numerous experts predict another significant drop in inflation. On January 12, 2023 at 8:30 AM EST, CPI data for December 2022 is expected to be published. Positive numbers could lead to a rally but have a strict expiration date.
From January 31 through February 01, the next FOMC meeting takes place. The next press conference will take place at 2:00 EST the second day. That’s when the Fed’s hawkish hammer could strike, bringing down the Bitcoin price again.
As of press time, Bitcoin was trading at $16,793, a close range from $16,250 to $17,000 up until December 17.
Bitcoin Price in The Lead-up To The Next FOMC meeting
According to the minutes of the meeting, Fed officials also agreed that it needed to slow down the Fed’s aggressive rate hikes (50 basis points in December). At the same time, it noted that “most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance.”
This could mean that Fed officials are open to considering a quarter percent increase at the next meeting. However they may also be open to higher rates than anticipated if inflation continues to rise.
Minutes also reveal that very few people were concerned that the central banks might be too aggressive at this stage and start a recession. Only a few participants recognized that the risks to the inflation outlook had become more balanced. This meant that there was less risk of doing too little than doing too much.
In response, Goldman Sachs commented that the “Fed either pivots too early and turns dovish into a high inflation scenario which is fairly bearish the USD thus helping gold or they pivot too late and cause a much bigger recession than is priced in right now, resulting flight to safety helps gold.”
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