As the most important central bank in the world, the Fed set a clear course in December. In the minutes (minutes) of the FOMC Committee, which became public on January 6, it appears that on the one hand the bond purchase programs are to be scaled back by 30 billion US dollars a month, so that they could expire in March. On the other hand, three rate hikes are expected this year. The key interest rate could be increased to up to 1 percent by the end of 2022. It is currently only 0.25 percent.
Although the monetary policy goals are so far only a dream of the future, the global financial markets have reacted violently and have already priced in the tightening. The tech-oriented Nasdaq index drops by around 3 percent. More about it here.
In addition to high-risk growth stocks, the Fed protocols also had an impact on the crypto market. Bitcoin, for example, corrected by around 8 percent on January 6, 2022 and was again 3 percent in the red on January 7.
When will the ECB follow suit?
It is true that no central bank in the world has as much influence on the financial markets as the Fed. But at least since the minutes became known, another elephant has been in the room: When will the ECB follow suit?
Even in the European Union, i.e. the place where the euro currency watchdogs work, a toxic cocktail of price increases, fear of omicons and supply chain problems has been brewing since yesterday. Alone, Lagarde et al. Have not yet heard of monetary tightening.
Most recently, ECB President Christine Lagarde rejected a contractionary monetary policy. During the last press conference of the ECB Executive Board, Lagarde announced interest rate hikes in 2023 at the earliest – despite rising inflation expectations. As Bloomberg reported that inflation in the euro area is now climbing up to 5 percent.
Inflation is only “temporary”
The reason for the reluctance of the European monetary authorities is the assumption that higher inflation rates are only temporary. The long-term inflation target of 2 percent can therefore also be achieved with the current loose monetary policy. The most recent summary of the European Central Bank’s monetary policy objectives states:
“[Die EZB] believes that underlying inflation advances are far enough to be consistent with inflation stabilizing at 2 percent over the medium term. ”
Now it will be interesting to see whether the ECB will be impressed by the very clear direction of the colleagues in Washington, or whether the markets will continue to freely supply the markets with liquidity. One thing is certain, however: if interest rates are raised early in the euro area, the crypto market will once again write significant losses. However, the Directory is still shrouded in silence. When asked how the ECB intends to deal with rising inflation, we were at last Interview with ECB Executive Board member Isabel Schnabel referenced. The high inflation figures should be seen in connection with the pandemic.
The next meeting of the ECB Council is scheduled for the beginning of February – then we will know more.
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What do interest rate hikes in the euro area mean for Bitcoin?