Jerome Powell, Chairman of the US Federal Reserve, will take the stage today to address the nation. For the past two days, Powell has been in a meeting with the Federal Open Market Committee, which sets the regulator's monetary policy. All eyes will be on Powell as he reveals which direction the Fed will take next. For the crypto community, your comments today could dictate whether Bitcoin's bullish momentum continues or whether it is the start of a brutal 2018-like bear market.
Hoping Powell doesn’t ruin the party tomorrow. The market wants the SLR extended and reassurances regarding yields. If the SLR doesn’t get extended and Powell plays rising yields down, turmouil in rates would ensue, pushing other markets down.
– Alex Krüger (@krugermacro) March 17, 2021
Bitcoin It is trading at $ 55,179 at press time, down just 0.5% in the last 24 hours. The flagship cryptocurrency set a new record on Sunday, March 14, just above $ 61,600. Since then it has fallen by about 10%.
Powell's press conference will take place a year since the pandemic hit the US economy. At the time, investors were selling their assets and looking for cash security. The Fed intervened with some of its most drastic policy directions to date, managing to save the US economy a year later, the economy is doing much better, with stimulus controls and the launch of vaccines signaling a better future. Yields on 10-year Treasury notes stand at 1.6%, approaching an annual high, compared to 0.9% at the beginning of the year.
Much of this could change today and with it, too the cryptocurrency market.
The dollar-Bitcoin relationship
Economists have been racking their brains trying to predict how the market will react to Fed policies. Analysts at Dutch bank ING believe that Powell will opt for moderate policies in an effort to calm the market. This could "encourage a return to a weaker dollar," they believe.
If Powell takes this approach, the equity and Bitcoin markets could be the big winners. Last year, the two markets were inversely related to the dollar index: every time the dollar index goes down, it almost always shoots up.
Bank of America analysts also they think that the Fed will take this direction, while preparing some gradual policy changes. "This will likely be the Fed's first step in the less accommodative direction as they move forward to set the stage for a gradual reduction and eventual tightening of policy," the bank stated in a note.
"They want to suggest that things are better," said Bill English, a finance professor at the Yale School of Management. “On the other hand, they don't want to suggest that they are going to change policy anytime soon. So it is a complicated communication ”.
On the other hand, Powell could announce new measures that could lead to higher bond yields. Treasury bond yields have already almost doubled in the first three months of the year. Higher yields attract more investors to bonds. These investors often have to sell riskier assets, such as stocks and Bitcoin.
The Fed has managed to keep yields low over the past year by buying $ 120 billion worth of bonds each month. This additional demand for bonds keeps yields low, resulting in low interest rates. The result is that Americans can easily borrow and, in the long term, this stimulates the economy.
The US economy is on track again
Powell will also have to address how the Fed will manage an economy rebounding after a year of lockdowns, uncertainty and job losses. The United States is now leaving the worst of the COVID-19 pandemic behind. 2.4 million Americans are vaccinated daily. As a result, the economy is opening up and more people are going back to work.
Goldman Sachs recently revised its GDP growth forecast for the US economy to 7%. Bank of America also revealed that unemployment could fall slightly.
Kathy Bostjancic, chief financial economist at Oxford Economics in the United States, believes this growth could cause the Fed to control the growth of riskier assets. While he stated that Powell will not specifically target the cryptocurrency market, he believes the Fed would prefer to promote long-term bond rate growth.
They are not going to try to target cryptocurrencies. However, they probably wouldn't mind if we had a moderate rise in long-term bond rates, which was a natural breakout for some of these riskier assets.
The entry All eyes on Fed Chairman Jerome Powell's speech: What's in store for Bitcoin? was first published in Crypto report.