The rhetoric of the US Fed in the accompanying letter on interest rates is neutral. This means that if Powell does not soften it, the markets are more likely to risk going lower under current conditions.
Key points from the Fed's letter:
- The economy is growing confidently despite export volatility.
- The unemployment rate remains low, and the labor market situation remains strong.
- Inflation is still "somewhat elevated," but is decreasing (the Fed removed the wording about risks of higher unemployment and inflation).
- The vote in favor of another pause was unanimous (the Fed has kept current interest rates at the same level for the fourth consecutive meeting, - ed.).
- The median forecast from the Fed suggests a rate cut in 2025 twice totaling 0.50 percentage points. Additionally, according to the median forecast, interest rates will be 3.6% by 2026 and 3.4% by 2027.
- Quantitative tightening continues.
- The Fed remains "mindful of risks," but explicitly states that if necessary, it is "ready to tighten policy again."
- The GDP forecast for 2025 has been revised downward to 1.4%, while the inflation forecast has been adjusted upward to 3% from 2.7% in March.
What does this mean for BTC and the crypto market?
- Pressure from QT remains - liquidity continues to tighten, which is bad for risk assets.
- There is no driver in the form of a rate cut, the market will depend on inflation and macro data.
- The positive aspect is that inflation is falling, and the Fed indicates that it is observing and ready to "flexibly respond." But flexibility can go both ways.
If inflation continues to slow down - the market will begin to price in easing.
