Bitcoin (Bitcoin) Rose to more than $40,000 on Thursday, after the Fed signaled that it was about to end its asset purchase program to promote the recovery of the US economy the day before.
Prior to the Fed’s key update, the benchmark cryptocurrency was close to $41,000 on the previous trading day. Nevertheless, after the Federal Open Market Committee (FOMC) issued a policy statement, the Federal Reserve Chairman Jerome Powell chaired a press conference, after which it began to lose upward momentum.
As Economists had expected, Fed officials kept monetary policy unchanged at the end of the two-day policy meeting. They pointed out that the U.S. economy has moved towards the goal of maximizing employment and inflation, and the Fed will continue to evaluate its stimulus policies in the coming months.
Bitcoin investors have been paying close attention to how long the central bank may cancel its $120 billion monthly bond purchase plan. This is partly because the benchmark cryptocurrency has seen a bull market of US$4,000 to US$65,000 under the Fed’s loose monetary policy.
Inflation or not inflation?
Powell said earlier that they will continue to purchase assets until they see “substantial progress” in the US economic recovery.
But Wednesday’s press conference was the first time the Fed had to explain how it views “substantial further progress.” CNBC’s Steve Liesman put the above question before Powell, and Powell replied that this means a strong labor force and progress in achieving maximum employment.
The reporter’s follow-up question emphasized Powell’s explanationtemporary“He and his office used this term repeatedly in previous FOMC statements to dispel concerns about rising inflation in the United States. Powell took at least two minutes to answer the sudden inquiries and pointed out that inflation will rise in the short term, but it does not Will rise year by year.
“This [consumer price] Will increase. We are not saying that they will reverse.So there will be inflation, but [its] Process will stop […] If it does not affect long-term inflation expectations, then it is likely that it will not affect the future inflation process. What I mean by temporary is that it will not leave a permanent mark on the inflation process. “
Scott Skyrm, executive vice president of fixed income and repurchase at Curvature Securities, pointed out that the term “inflation” or “price stability” was mentioned ten times in the Federal Open Market Committee’s statement. This shows that consumer price increases are in their minds, even if they refute its existence by using the word “temporary.”
Lyn Alden, founder of Lyn Alden Investment Strategy, stated that Powell is trying to admit that inflation is not temporary in an absolute sense, that is, the Fed chairman admits that their ongoing policies will lead to “permanent price increases.”she Add to:
“In his opinion, [inflation is being] temporary [the] Rate of change clause (YoY growth will not remain at this rate). “
Alden’s statement from One of her most recent newslettersIn it, she pointed out that although year-on-year inflation fluctuates between highs and lows, it seems to be short-lived (first chart below). Nevertheless, because consumer prices remain on a permanently higher platform after each inflation spike, inflation continues to rise (as shown in the second chart below).
Skyrm pointed out that Powell views “substantial further progress” as a style of maximizing employment, and the complete elimination of inflation concerns means that their reductions will respond to improved labor data, rather than soaring consumer prices.
Therefore, if Delta variant of Covid-19 Leading to another round of blockade, followed by more stimulus and unemployment benefits, people may not see the job market normalize. This will mean more inflation in the future.
The point here has nothing to do with inflation. This is how government supervision distorts the transmission of monetary policy. https://t.co/4gy3PhnEKS
— Scott Skyrm (@ScottSkyrm) July 27, 2021
“I suspect that many people might agree that this is one of the Fed’s most confusing press conferences,” Say Muhammad El-Arian, chief economic adviser of Allianz.
“The possible disagreement is the reason-especially the balance between true economic uncertainty and what behavioral scientists call’active inertia’/overly entrenched beliefs.”
Bitcoin price struggles with $40,000 resistance
Bitcoin once again fell below $40,000 at launch.
Technically speaking, due to the overbought relative strength index (RSI) on the daily time frame chart, the cryptocurrency is at risk of a correction down-RSI readings above 70 usually limit further upward bids on the asset.
Nevertheless, Gustavo De La Torre, director of business development at the cryptocurrency exchange N.exchange, believes that the Fed’s ignorance of inflation concerns will increase the demand for Bitcoin in the future.
The analyst called Powell’s statement a “necessary verbal easing,” and he pointed out that investors may now protect their alternative assets as a preventive measure against continued price increases.
He told Cointelegraph via Telegram: “Bitcoin is one of the few important candidates for investors to bet,” adding that even in the mid-term bearish phase, this digital asset can attract retail and institutional investors, which is sufficient. It shows that it is possible to set a new record high. De La Torre added:
“If concerns about inflation prompt investors to hoard assets, it will rise to a historic high of $64,000 by the end of the year.”