Federal Reserve’s Strategy Hits Crypto Markets

Despite an increase in the M2 money supply and the upward trends in stocks and gold, cryptocurrencies continue to languish. The anticipation of a market rally hinges on a significant decline in interest rates. However, many within the Federal Reserve, including prominent voices like Hammack, remain committed to a rigid policy, casting a shadow over the hopes of cryptocurrency advocates.

What Did Hammack Reveal?

Recent actions such as the acquisition of 196 BTC have failed to generate momentum in the cryptocurrency space. For the market to truly recover, especially altcoins, a steadfast drop in interest rates is necessary. Last week’s discussions among Fed members like Powell highlighted a general unwillingness to implement consistent rate cuts.

Only a small fraction, around three to four members, are supportive of ongoing reductions. This trend indicates a strong possibility of rates staying unchanged in the upcoming October meeting.

“There is pressure in inflation, particularly in the service sector. The labor market appears generally balanced. We need to maintain a restrictive policy stance.” — Hammack

How Will Inflation Impact Policy?

Inflation is expected to remain above the desired target for the next couple of years, making the 2% goal by 2027 or 2028 uncertain. Hammack’s comments underline the persistent struggle with inflation within the service domain, emphasizing the continuing effect of tariffs.

Hammack asserted the need for caution, stating, “Inflation is too high and trending in the wrong direction. Tariffs are a significant element of inflation.” This vigilance indicates a challenging period for the Fed’s objectives, with stable labor markets but worrisome inflation expectations.

Specific conclusions are drawn:

• Interest rate cuts are unlikely in the near future due to a firm stance by most Fed members.
• Potential rate maintenance at the upcoming October meeting could stagnate cryptocurrency growth.
• Inflation concerns, especially tariffs, are significant factors influencing monetary policy.

Continued vigilance over inflation overrules any immediate focus on the job market, prompting a conservative monetary approach. Supporting further rate cuts appears improbable as the Fed recognizes inflation as a higher priority threat to economic stability.