If Fed reduces tightening, bitcoin and crypto to rebound

With the U.S. midterm elections approaching, and world economies in free fall towards recession, there are signs that the Federal Reserve will either reduce future rate hikes or go into pause mode. Crypto will potentially rally into such an environment.

Another large rate hike?

The next FOMC meeting for the Federal Reserve is at the beginning of November, just a few days before the U.S. midterm elections. The likelihood of another 75 basis points rate hike appears to be on the cards.

According to Reuters, Jerome Powell, chairman of the Fed, has said that there is still a lot of “pain” to come. The Reuters article also stated that its survey of economists after the previous FOMC meeting resulted in 70% of them holding the belief that the Fed will hike 75 basis points yet again in November - the fourth straight hike of such a magnitude.

The economists did appear more than a trifle optimistic against the U.S. falling into recession. A poll taken earlier in September put the probability of this happening at only 55% for the next two years. Some economists have already stated in mainstream media that their belief is that the U.S. is already in a recession.

An end to hiking in sight

The majority of the economists polled by Reuters thought that the Fed funds rate would peak at “4.50%-4.75% or higher” in Q1 of 2023. Reuters also quoted Justin Weidner, economist at Deutsche Bank as saying that he believed the rate would peak at 4.75%-5.00%.

Even if the Fed funds rate were to peak at 5% it would appear that an end is in sight. Also, given the crazy strength of the U.S. dollar against other fiat currencies, should rate hikes continue at their current rate, it can only be expected that collapses may be seen on a country level.

The UK pound sterling is an example of this, when recently the Bank of England had to intervene in order to prop up the currency, the bond market, and pensions by reversing course and implementing quantitative easing. With other countries on the verge of collapse this course may well be copied, making it extremely difficult for the Fed to maintain its tightening policy.

Fed slow down could give crypto its signal

Of course, the moment the Fed “blinks” and starts to reduce or even pause its tightening, this could likely spell a period of recovery in markets. Given that bitcoin and crypto were the first asset class to really suffer steep price declines, it could be expected that crypto will be the first asset class to rally out of the bear market and into a new bull market.

Of course, world financial organisations are doing their level best to prepare some crushing regulations, but supposing that crypto is able to survive this, then bitcoin at least could provide a very attractive place for investors to opt out of the banking system with at least some of their wealth.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.