The release of the minutes of the Federal Reserve’s January meeting made clear that the Fed plans to raise interest rates more aggressively, especially with inflation hitting record levels.
In the minutes released, the Federal Reserve touched on the topic of crypto and stablecoins, raising concerns about the growth of this asset class.
Cryptocurrencies threaten financial stability:
Since November 2021, the Fed has become more hawkish, shutting down a lot of the stimulus programs that facilitate dollar printing and that fuel higher bitcoin and cryptocurrency prices in general. After the Federal Open Market Committee (FOMC) revealed in January that the Fed will raise interest rates next March.
The minutes of the Federal Open Market Committee’s January meeting have now been released, which revealed that the Fed plans to raise interest rates more aggressively than previously thought.
It was decided that if inflation did not fall as expected, they would raise rates at a faster pace.
The Labor Department report showed that inflation was at 7.5%, 0.2% higher than expected.
According to the minutes, if inflation does not fall as they expect, it would be appropriate for the committee to remove policy alignment at a faster pace than it currently expects.
The Fed also revealed that it will take trillions of dollars from the bond market.
The committee added that a significant reduction in the size of the balance sheet is likely.
The Fed’s total assets are now around $9 trillion, an increase of $5 trillion over about the same period last year.
It is worth noting that raising interest rates is not the only issue discussed by the Fed.
The Fed also raised concerns about crypto and stablecoins.
Federal Reserve officials also raised concerns about the emerging market’s rapid growth because they felt the space could pose a growing risk to financial stability.
The record stated:
Some participants saw emerging risks to financial stability associated with the rapid growth of crypto-assets and decentralized financing platforms.
Stablecoins have been rated as another weak spot in the finance markets.
It is important to note that these sentiments may influence future policy around the emerging crypto market.
Market reaction and outlook:
After the minutes were issued, there were bounces in the crypto markets.
Bitcoin dropped from a high of $44,132 to a closing level of $39,300 which is a drop of almost 10%.
Other cryptocurrencies such as Ethereum, BNB, and Solana have also recorded declines of 10%, 6.7% and 8.8% from their highs.
Currently, the crypto market is moving lower, with Bitcoin trading at $38,200, 5% lower than the previous day.
In an interview with CNBC, Tom Lee, co-founder of Fundstrat Global Advisors, offered his view on Bitcoin with rumors of an impending price hike.
He expressed his belief that trillions of previously printed dollars will flow from bonds to stocks, and that a lot of speculative capital will end up in the cryptocurrency markets, which will revive their prices, but so far the indicators are still red on most cryptocurrency prices.
Bitcoin price fluctuates around 40 thousand dollars…waiting for the next catalyst!
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