U.S. Federal Reserve officials seem to be favoring a non-interventionist approach, waiting for more definite guidance from President Donald Trump upon the start of his second term.
In her January 9th speech in California, Fed Governor Michelle W. Bowman expressed her anticipation that the following months would provide insight into the specific policies of the incoming administration and the continuation of inflationary pressures from the year 2024.
Fed officials cautious ahead of Trump administration
On the same day, speeches by Bowman and Jeff Schmid from the Kansas City Federal Reserve indicate a possible absence of need for additional rate reductions. This is due to the robust end-of-year performance of the US economy in 2024 and inflation consistently exceeding its 2% target.
As an analyst, I find myself approaching the conviction that the economic landscape no longer necessitates either tightening or loosening of policies, and it’s time for a balanced approach – a neutral stance in our policy-making decisions.
According to Bowman, it would be prudent for the Fed to exercise caution when modifying the policy rate, as they approach a more neutral stance.
On the same day, Patrick Harker, president of the Philadelphia Federal Reserve, stated in a speech that it might be suitable for us to momentarily halt actions and observe how events unfold. In other words, Harker suggested we should pause and watch how things develop.
“We’re not talking about a long pause potentially, but let’s see how things shake out. There’s a lot of uncertainty.”
Bowman cautioned that overly rapid decreases in the policy rate might “unintentionally fuel demand excessively and possibly rekindle inflationary tensions.
According to Schmid, it’s best for the Federal Reserve to hold off for a clearer picture of how economic activity, employment, and inflation could be influenced.
There is a 95.2% likelihood that the Federal Reserve will keep its current interest rates during their meeting scheduled for January 29th.
On the other hand, as per Ryan Lee, the chief analyst at Bitget Research, the recent drop in Bitcoin‘s (BTC) price to $92,500 on January 8 can be attributed to robust U.S. economic data suggesting possible increases in interest rates.
According to Lee’s statement, this recent development has made investing in cryptocurrencies seem less appealing, and the hints from the Federal Reserve regarding a stricter monetary policy have only served to deepen the market adjustments.
Fewer rate cuts forecasted than the crypto industry anticipated
On December 18th, the Federal Reserve decided to lower interest rates by 0.25%. Bowman expressed her approval for this move in December as it signified the conclusion of the “adjustment period” in their monetary policy.
It followed cuts of 0.50% in September and 0.25% in November.
As a crypto investor, I must admit that the market was bracing for some sort of decision in December. However, when Chair Powell hinted at just two additional rate cuts in 2025, it set off a wave of unease across the market.
The Fed committee also raised their 2025 inflation outlook from 2.1% to 2.5%.
This piece serves primarily as a source of general knowledge and isn’t meant to serve as legal or financial guidance. The perspectives, beliefs, and viewpoints shared within this text are solely those of the author and may not align with or be endorsed by CryptoMoon.
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2025-01-10 09:35