Asset management giant BlackRock expects the Federal Reserve to keep its policy interest rate flat at its next Federal Open Markets Committee (FOMC) meeting on Wednesday.
BlackRock’s Fed Forecast
According to Marilyn Watson – BlackRock’s head of Global Fundamental Income Strategy – the central bank’s federal funds target rate will remain roughly the same until the end of the year – going through its September, November, and December meetings.
However, Watson also expects the Fed’s target rate to remain elevated until mid-2024 before a series of modest cuts bring it down 1% from its current level by the end of next year.
“In terms of inflation, it has been moderating, it has been coming down, but it’s still above the target,” Watson said to Bloomberg in a Monday interview. “I think really what we need to see is a deterioration in economic activity… and at the moment we just haven’t seen that in terms of the data.”
Since March 2022, the Fed has steadily raised rates to combat record-high inflation in the United States, hammering both stock and crypto prices in the process. Though many expected its hawkish rate hiking regime to dismantle the global economy, its consequences have largely been contained aside from a short series of bank failures beginning in March 2023.
“For the moment, I think the economic data has consistently surprised to the upside,” said Watson. That includes GDP, the unemployment rate, and the labor market.
Given the economy’s strong performance, Wharton finance professor Jeremy Siegel also believes the Fed won’t raise rates on Wednesday – nor should they – breaking away from the position he held last year.
“The political calculus is the Fed should not raise again,” he told CNBC in an interview on Tuesday. “If you ask the average worker, ‘do you want to squeeze a point or two of super core inflation or a million to two million more unemployed?’ they’d say they don’t want a recession.”
Siegel added that equities may hold “firm” for the remainder of 2023 thanks to the strength of real economic data. Bitcoin has historically correlated with equities – particularly in the context of central bank activity.
Beware A Recession
While the economy looks strong now, popular crypto market analyst TXMC on X (Twitter) warns investors to beware of a recession likely starting next year.
“I think the market may begin to sniff an end to the tightening cycle and could lift on that sentiment,” the analyst told CryptoPotato via DM. “Recession risks remain elevated into the first half of next year, however.”
The analyst has previously argued that Bitcoin’s price is primarily determined by macroeconomic conditions – including its 4-year cycles, which he does not believe are related to the Bitcoin “halving.”
“Risk assets go lower in recessions, so I would expect BTC would not perform well in that environment,” he added. “It has not seen a real recession in its existence.”
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