With the latest June CPI data already out, all economic eyes are now on the US Federal Reserve and the upcoming FOMC meeting scheduled for the end of July.
Although inflation may refrigerationThere are still those calling for an interest rate hike during the next meeting. The question is: what would happen to Bitcoin and its price stagnation if this were the case?
Big macro test in the future?
Odds have fallen over the past week or so after June inflation data showed a significant decline to 3.5%. While this may be more misleading than it sounds, given the fact that oil prices rose in July due to the collapse of the ceasefire, data from CME FedWatch shows that experts believe there is an 85% chance that policymakers will leave interest rates unchanged. In contrast, the odds of a 25 basis point increase stand at a more modest 15%.
These odds changed after Tuesday’s CPI announcement in light of the weaker-than-expected reading, reinforcing market expectations that the Fed will not focus on its current strategy. However, there are those who continue to make increasingly extreme statements, Included New Fed Chairman Kevin Warsh and Dallas Fed President Lori Logan.
High interest rates are seen as a barrier to Bitcoin and other riskier assets, as investors tend to become more defensive. Higher borrowing costs enhance the attractiveness of low-risk investments such as Treasury bonds, while reducing liquidity in financial markets.
The most recent major example of Bitcoin falling after a strong Fed tightening cycle was in 2022/2023. However, today’s market is different from previous cycles.
Will BTC really collapse?
Much of the market’s reaction will likely depend on whether a rate hike will completely surprise investors. Markets overwhelmingly expect interest rates to remain unchanged; An unexpected interest rate hike of 25 basis points, or more riskily, 50 basis points, could lead to sharp sell-offs across stocks, cryptocurrencies and other risky assets.
However, the long-term picture offers a different view. If the central bank raises interest rates because the domestic economy remains resilient and inflation proves difficult to overcome, stronger economic activity could continue to support corporate profits and the appetite for institutional investment. BTC has proven in the past that it can quickly recover from macroeconomic-driven shocks, especially when long-term demand remains intact.
Right now, the landscape looks very fragile, even with markets anticipating no changes in interest rates. However, inflation remains above the Fed’s target, and many policymakers have doubled down on their more hawkish stances, which could lead to some wild price moves if the central bank surprises investors with a rate hike in July.
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