Crypto and legacy markets may see a spike in volatility within hours. Wharton School Business Professor Jeremy Siegel told CNBC’s ‘Closing Bell: Overtime’ that “it would be a disaster” if the United States Federal Reserve (FED) increased rates by 50 basis points on February 1, 2023.
Fed to raise interest rates by 0.25%
The professor stressed that if the Fed mentions any figure “not 25 basis points” during today’s meeting, the effect will be far-reaching.
In addition to the change in interest rates, Jeremy wants to see the Fed change the wording of its statement and clearly state that the monetary policy decisions of the past few months are working. He added that it would be refreshing the FED to ensure the market is close to a tightening cycle.
Crypto and legacy market participants expect the United States central bank to reduce rate hikes in the coming months. However, the hopes of traders and investors can be dashed if policy makers assess the market situation in a different way and see the need to maintain high levels.
Economists expect the FED Raise it interest rate by 25 basis points to 4.75%, up from 4.50%, on February 1, 2023. The bank will start raising interest rates in January 2022. During the month, the common interest rate in the United States rose from 0.25% in January 2022 to 4.50% at the end of 2022.
Falling Inflation, Rising Crypto, And Bitcoin Prices
Inflation includes many factors, including labor conditions, that the Fed considers when setting interest rates. The effects of the COVID-19 pandemic and the government’s need to intervene and reduce its citizens have seen the government reduce rates to record levels.
According to Jeremy, inflation is inevitable with “money pouring in all the time,” and it’s very likely to happen in 2021 and 2022. New reading show that the Consumer Price Index (CPI), a metric tracking price pressure on consumer goods and a proxy for measuring inflation, has eased after rising to multi-year highs.
In December, inflation fell to 6.5%, marking the sixth consecutive month of falling consumer prices. It peaked at 9.1% in June 2022 before falling to 6.5% in December, 1% less than January 2022, when inflation was at 7.5%.
The price of Bitcoin recovered briefly in December 2022, falling after losing more than 60% in the 13 months from November 2021, as a reaction to changes in macroeconomic conditions, especially inflation.
Over the past few weeks, Bitcoin prices have been tracking higher as the crypto market expects inflation to decline and the Fed to gradually tighten in 2023.
Therefore, how the FED’s actions can shape the short-term price structure for Bitcoin. The coin retreated sharply from around $24,000 on January 30 but held steady yesterday.
Feature images from Canva, Charts from TradingView.