Fed Governor wants to intervene quickly with small interest rate hikes and that puts Bitcoin under pressure
Inflation is still too high. Interest rate hikes are on the horizon. That could hurt Bitcoin. Here's what you need to know.
Cleveland Fed President Beth Hammack believes that the US central bank should keep interest rates restrictive for the time being in order to reduce inflation to 2 percent.
In addition, she has a clear preference. Rather small interest steps on time, than waiting too long and having to intervene much harder later. This is not a pleasant signal for Bitcoin (BTC).
The market now expects an approximately 84.7 percent chance of an interest rate hike at the Fed meeting on 9 December. The bulk of that is in a 25 basis point increase.
For the meeting of 28 October, the market mainly expects the Fed to do nothing. That combination fits exactly with Hammack's preference. Do not aggressively increase, but continue to adjust as long as inflation remains too high.
The US central bank also has reason to do so for the time being. PCE inflation stood at 3.4 percent year-on-year in August. Core inflation was 3 percent.
This clearly remains above the target of 2 percent. Hammack warns above all of the risk that high inflation expectations will become entrenched in the economy.
As long as that risk remains, she would rather keep interest rates high for too long than relax too early.
Those interest rate expectations are also keeping the US dollar strong. The Dollar Index is around the highest level in 18 months.
This is a headwind for Bitcoin, as higher US interest rates and a stronger dollar make safe dollar investments more attractive.
Bitcoin trades around $81,700 and is down about 1.9 percent in October. This is striking, because October is historically one of the strongest months for Bitcoin. Since 2013, there have only been three negative octobers.
The new US CPI figure will appear on Wednesday. A higher inflation rate can further increase the likelihood of a December hike and strengthen the dollar again.
Lower inflation can provide relief. The big question for Bitcoin is therefore not only whether the Fed will pause in October, but above all whether the market will continue to believe that there will be another rate hike in December.