With Bitcoin price posting a small gain of more than 1.5% over the past seven days, the market is facing a blockbuster next week.
The release of the consumer price index (CPI) on December 13, Tuesday at 08:30 ET, will again be “the most important CPI ever.”
Just one day later, on December 14, Wednesday at 2 p.m. ET, the last Federal Open Market Committee (FOMC) meeting of the year will take place. Notably, FED members will release their updated inflation and interest rate (dot plot) forecasts during the meeting.
A blockbuster week
Released only four times a year – in March, June, September and December – the dot chart presents the FOMC’s economic projections, which look at GDP, unemployment and inflation for the coming months and longer term.
Within the dot plot, each member of the committee publishes their views on potential interest rates over the longer term.
For investors, this is extremely useful information, as it allows market participants to see if the consensus path for longer-term interest rates is changing.
The markets, as well as Bitcoin investors, will therefore eagerly await next year’s inflation forecasts, as well as interest rate expectations for 2023 and 2024.
As economics journalist Colby Smith wrote in November, the September dot chart showed that most officials favored a slowdown to 50 basis points in December.
The question for next week is whether the Fed, led by Powell, will slow down a rate hike of 25 basis points (bps) or even a hinge.
The Fed introduced the idea of slowing the pace of rate hikes in July, and the September dotted line showed support from most officials for a cutback to 50 basis points in December. The question today is how far Powell will go to ratify that move https://t.co/Pn8n0lh4kZ @Financial times pic.twitter.com/62XOqMlm3T
— Colby Smith (@colbyLsmith) November 2, 2022
A year-end rally for Bitcoin?
These two events could be the “last remaining hurdles” to a year-end rally for Bitcoin, QCP Capital wrote in an analysis.
However, a higher-than-expected consumer price index and tighter stance from the Federal Reserve could derail that rally, as the April and August reversals showed.
On the other hand, further disinflation could lead many to continue the rally through the end of the year, according to QCP Capital’s analysis. It goes on to say that the question facing the markets now is where inflation will bottom out.
Even if 2% inflation is out of reach next year, will it fall low enough for the Fed to cut rates while keeping real rates positive?
An important market theme for next year is therefore the shift from ‘peak inflation’ to ‘trough inflation’.
This is another reason why the dot plot is of utmost importance. As the last two releases show, Powell has been relatively strict with forecasts regarding interest rates. So the dot graph could provide some insight into Powell’s thoughts on a pivot point.
If the new data matches CPI expectations, it would be the fifth consecutive monthly decline. After peaking at 9.1% yoy in June. Next week’s value could even be the lowest since January.
Will Powell follow his words
Given Powell’s recent comments to the Brookings Institute on Nov. 30, it is also likely that the FED will stick to the script and raise its policy rate by just 50 basis points to 4.5%, boosting bullish sentiment in the market. strengthen.
If CPI falls even below expectations, markets could bring forward the Fed’s decision and trigger a year-end rally. In any case, next week will bring great volatility to the Bitcoin and crypto markets.
Investors should pay close attention to the release of the Fed’s dot plot.
At the time of writing, Bitcoin was trading at $17,228, which shows signs of force prior to the FOMC meeting.
