The Federal Reserve announced the minutes of the November FOMC meeting. It further reveals the considerations behind the monetary policy makers’ announcement of the launch of Taper (the Fed’s reduction in the size of bond purchases and the reduction of the Fed’s balance sheet. That is to say, the Fed is slowly reducing the intensity of easing).
The minutes of the meeting showed that Fed policymakers acknowledged. High inflation in the United States may last longer than previously expected. If necessary, it will speed up the pace of reducing the scale of bond purchases (Taper) and raise interest rates ahead of schedule.
Taper means the diminishing margin of dollar liquidity. Although this change does not change the direction of expansion or contraction of liquidity itself. But it may change the flow of funds or the degree of misallocation of assets.
Especially for Bitcoin, an alternative high-risk asset. Its sensitivity to changes in US dollar liquidity will theoretically be higher. (As we observed during March last year, due to the shortage of market liquidity, the price of Bitcoin dropped by nearly 50% in one day).
Impact on Bitcoin
The Fed officially announced the launch of Taper in December. It was the culmination of Bitcoin’s 2013 bull market, during the previous round of Taper. Bitcoin is in a bear market.
The minutes of this meeting are different from the past. Clearly point out the “early interest rate hike schedule” statement.
The minutes showed that some participants suggested speeding up the pace of reducing debt purchases. This allows the FOMC to be in a better position to respond to the need to adjust the federal funds rate. Especially under inflationary pressure. Several participants pointed out. If inflation continues to be higher than the committee’s policy goal. The FOMC should be ready to adjust the speed of Taper. At the same time, the target range of the federal funds rate (rate hike) was adjusted earlier than expected.
The last FOMC meeting of this year will be held on December 14-15. At that time, the new economic forecast and bitmap will be announced. Half of the FOMC committee members expected a rate hike in 2022 in September. This group is expected to expand further next month. Swap contract price display. The current market expects that the Fed will raise interest rates three times (25 basis points each) in 2022.
Huobi Research Institute William pointed out: “Accelerating Taper means accelerating the launch of QE. This means that the turning point of liquidity will be advanced. Therefore, under the influence of market expectations. Various types of high-risk assets represented by Bitcoin. In the future. It is difficult to continue to rise, and it is not even possible to rule out the possibility of further decline.”