GB Market Commentary 18/08/2022
by Marcus Sotiriou
Bitcoin fell yesterday as the market reacted negatively to the FOMC minutes that were released at 6.30pm. These minutes were the notes from the last FOMC meeting which occurred last month.
There were some positive statements in the FOMC minutes such as, ‘most market participants appeared to view a moderation of inflation and slower, but still positive, economic growth ahead as the most likely scenario’. This scenario is exactly what the Federal Reserve is aiming for and is the best result for consumers.
Furthermore, ‘most expected a 50 basis point increase in September to follow’. The market is pricing this happening as a 60% chance, and this is a positive in my opinion as it is less than the 75 basis point rate hike in July and is a sign of the Federal Reserve becoming less aggressive.
However, there was some cause for concern in the FOMC minutes. The Staff Economic Outlook showed that ‘the projection for U.S. economic activity prepared by the staff for the July FOMC meeting was noticeable weaker than the June forecast’. Considering the June forecast was bearish on the economy, this gives an indication that a recession could be looming. In addition, the Committee feared that ‘elevated inflation could become entrenched if the public began to question the Committee’s resolve to adjust the stance of policy sufficiently’.
Therefore, the FOMC are telling us that although they are seeing the economy soften which aligns with their current goal, but it will probably take more time for their policy to have a lasting impact on persistent inflation. This is because monetary policy effect can lag due to the constantly changing nature of the economic environment.
Bitcoin and equities reacted badly to this view of the potential for inflation to last for longer, however the bond market, which is typically an accurate indicator for the direction of inflation, predicts that inflation will decline in the coming weeks/months.