Crypto markets jumped immediately following news from the Federal Reserve that it would be reducing its bond purchases by $30 billion a month, up from $15 billion.
The Fed also confirmed that interest rates would remain between 0 and 0.25% in an effort to promote maximum employment and to keep inflation at the rate of “2 % over the long run.”
After abandoning the “transitory” narrative earlier in the month, Fed chair Jerome Powell took a more hawkish stance in his speech, but kept a tone of optimism on the US labor market and the economy’s recovery from the COVID-19 restrictions.
According to the Fed’s official statement,
“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but continue to be affected by COVID-19. Job gains have been solid in recent months, and the unemployment rate has declined substantially.”
Both legacy and crypto markets reacted positively to the statements. Bitcoin bounced hard off the 50-day moving average and almost took out $50,000, while Ethereum reclaimed the $4,000 mark and is so far holding it as a psychological level. The S&P 500 also jumped off its 50-day moving average and recorded yet another all-time high above $4,750. As asset prices spiked, the US dollar index also began showing signs of weakness, something that many analysts and traders are looking for to signal another leg up for crypto.
According to Jerome Powell, the historic levels of inflation, which he admits are worse than previously projected, primarily stem from supply and demand imbalances caused by the closing and reopening of the economy during COVID-19. He said that the Fed, along with the majority of forecasters believed inflation would decline by the end of 2022.
“As a result, overall inflation is running well above our 2 percent longer-run goal and will likely continue to do so well into next year. While the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services.”
…Like most forecasters, we continue to expect inflation to decline to levels closer to our 2 percent longer-run goal by the end of next year.”
With the end of the year approacing, most crypto investors have warmed up to the idea of an extended bull rally that lasts well into 2022. Others are at least expecting a relief rally to close the year off. Macro economist and crypto analyst Alex Kruger said the odds were high for ETH hittinng all time highs and a reasonable bull run for the rest of the market.
“Odds are high IMO we get a spot driven hated santa rally into year end. BTC back to upper 50s, nothing too crazy, ETH to all time highs. Hated, as so many market participants sold, and it can be very hard to change bias and buy back. Those who sold will hate it…
The Fed did turn hawkish, and ‘brrr’ will progressively be removed, so good idea to not let bullish expectations get too ambitious. Bull market goes on, just not such an easy up-only ride any longer.”