The rate has been raised, but what's next?

Crypto News
27 July 2023

The investment public is already triumphant that the rate is approaching its peak and we will soon see a decline that will lead to a market bubble - this is not entirely true, as there are a number of arguments against it:

  1. Why was it raised in the first place? Not long ago, $ inflation broke the 40-year high. The rate hike is a response to rising inflation. The purpose of the rate hike is to withdraw liquidity from the economy to reduce demand and fight inflation.
  2. When is the end of the increase and the beginning of the decrease? Most likely not soon. The increased rate is unpleasant for businesses, banks and other entities, as the interest rate on loans increases, and we have already seen problems in the banking sector this year, but so far everything is fine, which cannot be said about the situation in general. Loans were previously taken out at a fixed lending rate, so the increased rate does not apply to all sectors of the economy. It will take some time for us to get the desired effect. + The rate is not always lowered because everything is going well, on the contrary, it may be lowered because of problems in other sectors due to the high lending rate. This is all cyclical and we have not yet seen the full effect of the Fed's actions.
  3. "The Fed is committed to maximum employment and inflation of 2%" - this was emphasized several times, J. Powell stands firm on his goal and assures that they are ready to act further if necessary, i.e. the goals have not been achieved and at least the rate will be kept at the same level. Reputable banks estimate that the targets can be reached closer to the end of the 24th year. There is a chance that the raised rate is with us for a long time.
  4. "The Fed is ready to change its monetary policy if there are serious risks to the economy" - the situation is under control, everyone understands the risks of a raised rate, but now everything is fine and they can continue to act as planned.
  5. The next meeting will be in September, so the upcoming macro news is extremely important, because the next Fed meeting and the interest rate decision will depend on it. Keep this in mind when trading to keep your positions in line with the news.
Jerome Powell

Key points of J. Powell's speech yesterday, in addition to those above:

  1. The Fed can continue to reduce its balance sheet and cut the rate at the same time.
  2. "I don't think we will cut the rate this year."
  3. The full effects of the tightening of the GPP have yet to be felt.
  4. Inflation has slowed somewhat. Inflation expectations have become more stable. The economy is growing moderately.
  5. Employment is still growing at a high rate in the United States.
  6. Strong economic growth may cause spikes in inflation. We will take action.
  7. Core inflation is still very high.
  8. Inflation has proved to be more resilient than previously anticipated.
  9. The Fed chairmen do not predict a recession in the United States.
  10. The level of wages is an important indicator for fighting inflation now.
Rate increase

22% - probability of a rate hike on September 20 before the release of new macro news

To sum up, let's use critical thinking and fully analyze the situation. The start of rate cuts does not equal a positive and a pump, there are a number of additional factors that also need to be taken into account. The Fed has not yet achieved the desired result from its monetary policy, more time is needed. The process of reduction will most likely not begin in 2023, and there are good reasons for this.

If you want to learn more about cryptocurrencies and get skills, experience and tools that you can immediately apply in the cryptocurrency market - sign up for trading courses at the CRYPTOLOGY trading school.

Join our mailing list. No spam.
Only exclusive offers.