Fed’s Inflation Outlook and Its Impact on Crypto
In June, the U.S. Federal Reserve reported that while inflation is easing, it remains above the 2% target. This development has significant implications for the crypto market, particularly Bitcoin.
Declining inflation could prompt the Fed to lower interest rates, making borrowing cheaper and benefiting Bitcoin and other risk assets. However, in the short term, crypto prices may still be pressured by the high inflation environment.
Bitcoin’s price has been struggling, with recent Fed minutes showing divided opinions on inflation and potential rate hikes. Jonathan de Wet, chief investment officer at Zerocap, noted that the FOMC minutes did not help market sentiment, highlighting concerns about a cooling U.S. economy and the possibility of further rate increases if inflation persists.
The labor market remains strong, but signs of reduced tightness, such as declining job openings and lower hiring rates, could support future rate cuts if these trends continue. Last month, the Fed maintained the federal funds rate at 5.25% to 5.50%, with futures traders predicting two rate cuts this year, dependent on a loosening of monetary policy.
The minutes also discussed risks, including potential economic downside and persistent inflation due to geopolitical developments and trade tensions. Other central banks, like the European Central Bank and the Bank of Canada, have begun rate-cutting cycles, with more expected to follow.
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