Bitcoin price responded to the release of yesterday’s FOMC Minutes with a brief jump to $16,990, only to return to its previous range of around $16,800 shortly after within 30 minutes. And this trend could continue in the coming weeks and months. Macro analyst Alex Kruger mention:
Welcome to the 2023 Pump and Whack Market. Markets are pumping on falling inflation, and the Fed is whacking it.
The analyst based his opinion on a series of tweet from The Wall Street Journal’s chief economics correspondent, Nick Timiraos. The renowned journalist said one of the key statements in the minutes of the meeting is that Fed officials are concerned that an “unjustified easing of financial conditions” could “complicate” their fight against inflation.
That’s likely one of the reasons the FOMC minutes contain almost no discussion of how many officials plan to raise interest rates at the February meeting. Instead, the minutes state that officials still face a difficult communication task and want to avoid a broad “unjustified” easing of financial conditions.
As investors see a faster fall in inflation and respond with relief rallies, the Fed, in turn, could quell that euphoria. If the CPI data turns out to be much better than the estimates, the phenomenon of December 13 and 14, when the CPI data and the FOMC meeting happened in quick succession, could be repeated.
Leading up to and after the release of the CPI data, Bitcoin price rose nearly 10% to $18,350, but was put back on the ground by the Fed’s aggressive pronouncements. Bitcoin next fell 12% to $16,280.
This ‘pump and whack’ trade could continue in January and February as numerous experts predict another significant fall in inflation. CPI data for December 2022 will be released on January 12, 2023 at 8:30 AM EST. So, positive numbers can trigger a rally, but with a tight expiration date.
The next FOMC meeting will be held from January 31 to February 1. The subsequent press conference will then take place as usual at 2:00 PM EST on the second day. That’s when the Fed’s aggressive hammer could strike, sending Bitcoin’s price down again.
At the time of writing, Bitcoin price was $16,793, stuck in a tight range of $16,250 – $17,000 through December 17.
Bitcoin price ahead of next FOMC meeting
The minutes of the meeting also show that Fed officials agree that the Fed should slow the pace of its aggressive rate hikes (50 basis points in December). At the same time, it noted that “most participants emphasized the need to maintain flexibility and optionality in shifting policy towards a more restrictive stance.”
This could suggest that Fed officials could be willing to return to a quarter-point increase at the next meeting, but also that they remain open to an even higher-than-expected final rate if high inflation continues .
The minutes also show that relatively few concerns were raised at the December meeting that the central bank might go too far on this issue and trigger a recession. Only a few participants recognized that the risks to the inflation outlook must have become more balanced, meaning that the risk of doing too little is no longer much greater than the risk of doing too much.
In answer, Goldman Sachs noticed that the “Fed either turns too early and turns easing into a high inflation scenario that is quite bearish for the USD and thus helps gold, or it turns too late and causes a much bigger recession than currently priced in, resulting flight to safety helps gold. ”
Featured image from Yahoo! Sports, Chart from TradingView.com