The FOMC minutes for July 26-27th are out. After the marginal drop in inflation with less than expected CPI data last week, the overall market was somewhat positive. However, the meeting did not convey any surprises, good or bad. As expected by a majority, the minutes confirmed that the likelihood of another increase in rates is high. Most participants agreed on 75 bps for September, and most decided that there was little evidence that inflation pressure was subsiding. At the same time, Bitcoin and other alts faced downward pressure as BTC dropped under $23500.
Current Lay of the Economic Land
On 10th August, a lower-than-expected inflation rate saw Nasdaq pull 20% above its June low. A sharp drop in gas prices helped CPI data lift SPX above its resistance zone. Bitcoin and other Altcoins also registered a leg-up.
Amidst a small win, there were fresh hopes that the Federal Reserve would be less aggressive with interest rates, but the reality of the situation hasn’t changed. The recent FOMC minutes indicate that the tone remains relatively hawkish, and dovish views are still at the rear end. Right now, at least three months of subdued price increases for oil and other commodities are required before there can be a consideration for a halt in the interest rate hike cycle. Shawn Snyder, head of the investment strategy at Citi U.S Wealth Management, stated,
“For the market, it’s sort of a Goldilocks scenario right now because you have the labor market holding up and inflation potentially starting to come down. That is what a soft landing would look like. But one month of slowing inflation is not enough for the Fed to send an all-clear signal.”
Inflation at 8.5% is still extremely high.
It can be speculated that the monetary policies are beginning to affect the economy, and the Feds know it. They do not want to face complacency when it comes to avoiding rising Inflation, so they are continuously assessing financial stability. The FOMC stated that the Federal Funds Rate is near ‘long-term neutral,’ but that information should be taken with a bit of salt. Former Treasury Secretary Lawrence Summers was quick to be critical and termed Powell’s view ‘wishful thinking.’ He said,
“There is no conceivable way that a 2.5 percent interest rate, in an economy inflating like this, is anywhere near neutral.”
So, where does it leave Bitcoin and Co?
Plain and Simple. Follow the herd. Correlations between Bitcoin and the collective stock market remain relatively high. Yesterday, Bitcoin registered a minor drop alongside other major Altcoins but wasn’t signed concerning the FOMC minutes. However, it is essential to note that the decline happened when SPX witnessed a rejection from a declining trend line, as illustrated below.
Now, while correlations remain high, Ethereum’s upcoming merge is bringing positive attention. The largest Altcoin has fairly outperformed Bitcoin, and the ‘merge’ Social dominance has increased. Now September 15th/16th marks the scheduled merge data. Other important dates right around that week are the 12th/13th for CPI data release and the 21st of September being the FOMC meeting. A Volatile period remains ahead for Bitcoin, Ethereum, and other Alts as the market navigates through periodic stress.