A Rate Increase of a Full Percentage Point? Bitcoin Traders Assess the Fed’s Fear of Inflation

Bitcoin Traders
A Rate Increase of a Full Percentage Point? Bitcoin Traders Assess the Fed’s Fear of Inflation

Traders on the Chicago Mercantile Exchange drastically altered their expectations for the Federal Reserve’s upcoming interest rate announcement overnight.

The Fed may raise the official US interest rate by a full percentage point for the first time since the early 1990s, suggesting rising concern among traders and officials about persistent inflation. Only a month earlier, traders had nearly completely priced in 50 basis points.

The fear in traditional markets has spilled over into cryptocurrencies, as seen by bitcoin’s (BTC) 9.9% loss on Tuesday, its worst drop in more than three weeks. With August inflation figures due out on Tuesday, many experts have become gloomy about the economy.

Some traders agree, with a 32% possibility of a full percentage point (100 basis points) rate rise by the Fed’s Federal Open Market Committee (FOMC) meeting next week – a size not seen since 1994. According to the CME FedWatch program, which records bond traders’ transactions. The Fed’s goal is for inflation to average 2% each year.

According to the August consumer price index data, prices were 8.3% higher than the previous year, or nearly 6 percentage points higher than the objective.

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Former Treasury Secretary Lawrence Summers tweeted Tuesday, “Today’s CPI report indicates that the United States has a major inflation problem.” “If I had to pick between 100 basis points in September and 50 basis points in October, I’d go with the 100 basis point move to boost credibility.”

Even while year-over-year inflation fell to 8.3% in August from 8.5% in July, core inflation, which includes volatile food and energy costs, gained 0.6% in August, compared to a 0.3% increase the previous month.

“Markets have capitulated on that fact, and we are now beginning to comprehend that there will be no ‘Fed pivot’ as traders had hoped for in the short term,” said Howard Greenberg, a cryptocurrency trainer at Prosper Trading Academy.

“I’ll be keeping a careful eye on the US dollar index (DXY) coming up to the Federal Open Market Committee (FOMC),” he stated. “We saw bitcoin gain when the DXY cooled last week, but expect additional losses if it breaks back over $110.50 as traders become more risk-averse.”

The FOMC will meet next week, on September 21-22, and is likely to hike its benchmark interest rate for the fifth time in a row.

This month, both the European Central Bank and the Bank of Canada lifted interest rates by 75 basis points.

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