Imagine the scene: you, an experienced crypto trader, with eyes red from sleepless nights, are staring at the Bitcoin chart, which has suddenly shot 'to the moon' or, conversely, has broken through all possible support levels. You blame it all on whales, Elon Musk, the phases of the moon. But what if I told you that perhaps the main puppeteers pulling the strings of global markets, including our beloved crypto market, are sitting in a strict building in Washington and acting on instructions?
This document is not a secret manuscript of the Freemasons, but a quite official document: 'Statement on Long-Run Goals and Monetary Policy Strategy' of the Federal Open Market Committee (FOMC). Sounds boring, like a report on last year's milk yields? Perhaps. But for those who want to understand where the financial winds will blow, this document is a true Grail. Let’s try to peek into this 'black box' and see what’s inside, without convoluted terms and academic dust.
Thesis #1: The 'dual mandate' — two chairs on which the Federal Reserve tries to sit.
The Federal Reserve System essentially has two main commandments laid out by the U.S. Congress — the so-called 'dual mandate': maximum employment and stable prices. They build all their policies around trying to balance these two sometimes conflicting goals. It’s like trying to juggle while petting a cat — difficult, but possible.
Maximum employment: not just a number, but an 'inclusive goal.'
It used to be simple: there is a certain level of unemployment, below which the economy begins to 'overheat.' Today, the Federal Reserve looks at the broader picture. In their new strategy, maximum employment is a 'broad and inclusive goal.' Translated from 'Fed-speak' to plain English, this means they care about ensuring jobs for all segments of the population, not just that the average temperature across the hospital is normal.
Influencing factors: The main shift occurred after realizing that low unemployment does not always lead to uncontrollable inflation. Demographic changes, technology, and globalization have changed the rules of the game.
Brief conclusion: The Federal Reserve has become more tolerant. They will not rush to 'cool down' the economy and raise rates just because they see low unemployment figures. For the crypto market, this is a good sign: the 'cheap money' policy may continue for longer, fueling the appetite for risky assets, which are our favorite digital coins.
Stable prices: how to tame the inflation dragon.
The second goal is to keep inflation at around 2% in the long term. But a revolution has occurred here too. For years, the Federal Reserve could not push inflation up to the coveted 2%, and it remained consistently below. Therefore, they came up with a new trick.
Influencing factors: The constant battle against deflationary risks and low interest rates compelled the Federal Reserve to rethink its approach.
Brief conclusion: Now their goal is 'flexible targeting of average inflation.' This means that after periods of low inflation, they will deliberately allow it to be 'moderately above 2% for some time.' Imagine you are on a diet: if you ate only celery for a week (low inflation), then on the weekend you can treat yourself to pizza (inflation above 2%), so that on average everything is normal. For the crypto market, this is a double-edged signal. On one hand, it again points to a softer policy. On the other hand, rising inflation historically fuels interest in Bitcoin as 'digital gold,' an asset for preserving savings from the depreciation of fiat currencies.
Thesis #2: The Federal Reserve's toolkit — from the 'big stick' to fine-tuning.
The main tool of the Federal Reserve for managing the economy is the federal funds rate. Simply put, this is the interest rate at which banks lend to each other for short terms.
Dynamics and changes: When the Federal Reserve raises the rate, money becomes 'expensive.' Loans become more expensive, businesses and consumers spend less, and the economy slows down. For markets, this is a 'risk-off' signal — investors flee from risky assets (stocks, crypto) into safer bonds. When the Federal Reserve lowers the rate, the opposite happens: money becomes 'cheap,' the economy accelerates, and investors are willing to take risks in search of high returns.
Brief conclusion: The cryptocurrency market is extremely sensitive to the actions and even hints of the Federal Reserve. One careless word from Federal Reserve Chair Jerome Powell can cause a storm in the market. Statements about a possible rate cut often become fuel for a bullish rally, while rhetoric about raising rates can crash prices.
The bottom line for the crypto community: what to do with all this?
So, what does analyzing this seemingly boring document give us? It provides us with an understanding of the 'party line.' The current strategy of the Federal Reserve shows that the regulator has become more patient and is willing to allow the economy to 'pick up steam' in order to achieve its employment goals, even if it leads to a temporary spike in inflation.
For the world of cryptocurrencies, this creates an overall favorable macroeconomic background. The Federal Reserve's 'dovish' position means a lower likelihood of sharp and unexpected interest rate hikes that could disrupt market growth. Policies aimed at stimulating the economy often lead to an increase in the money supply, part of which inevitably flows into speculative markets, including cryptocurrency.
Of course, this does not mean that one can relax and wait for an eternal bull run. The Federal Reserve will always act based on incoming data, and if inflation gets out of control, they will not hesitate to deploy all their tools to tame it.
As an option, the next time you see the market in turmoil, don’t rush to read the predictions of crypto gurus on Twitter. Open the news and see what representatives of the Federal Reserve have stated. Yes, it may not be as exciting as following the launch of a new meme coin. But, as practice shows, understanding the game of the 'final boss' of the global economy can be much more beneficial to your deposit. And remember, this is not financial advice, just food for thought. Stay vigilant and DYOR.
