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Don’t Fight the Fed

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By the time most people read this Jerome Powell, chair of the Board of Governors of the US Federal Reserve System will have given his yearly speech at Jackson Hole, Wyoming. The speech details his financial outlook for the US and dictates whether crypto, along with most other markets, will pump or dump.

Each year the Federal Reserve Bank of Kansas City holds a symposium at Jackson Hole in Grand Teton National Park that attracts central bankers, economists, and policymakers from around the world. The 2022 symposium will open on Friday morning with a speech from Powell outlining his views on the current and future economic outlook.

Despite his previous speeches being woefully inaccurate at predicting the future, markets nevertheless look to the content and tone of the speech to give an indication of future Federal Reserve monetary policy. Will they continue to tighten and increase interest rates or show signs of pivoting to try and stop the economy from plunging into recession?

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Don’t Fight the Fed

The main reason that most crypto prices have been chopping sideways this week is that no one is certain which way the speech will go. If the rhetoric is positive the markets will continue their upward rally, but if it’s negative they will head into the weekend in freefall. As traders jockey for position, trying their best to time the markets and hedge their risks, prices fluctuate ahead of a breakout.

It’s guaranteed that inflation and recession will feature strongly in Powell’s speech and although the Fed like to claim they’re led by the numbers that won’t necessarily be the case for Jackson Hole. It’s far more likely that Powell’s speech will be intended to direct the markets in the way that the Fed hopes to push them, irrespective of the data.

Given that the US economy is in a technical recession, which is two straight quarters of negative growth, many commentators expect Powell to talk of a potential future pivot. He’s likely to indicate that September will see another interest rate hike and also signal a softening in their stance on tightening monetary policy. Both of these would be seen as positive for the markets since they will then price in growth rather than recession.

As the US Dollar still holds the prized position of being the world’s reserve currency, Powell’s comments will have a significant impact on the monetary policy of many central banks throughout the rest of the world. This in turn affects global stock and commodity prices which also feed into most other markets such as cryptocurrency.

Despite many in crypto seeing it as an alternative to the present global financial system, the simple fact of the matter is that it’s small in comparison to all other markets. The market cap of all cryptocurrencies combined stands at around $1 Trillion, which is roughly equivalent to the market cap of Tesla alone.

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Don’t Fight the Fed

While many are calling for the crypto market to decouple from the stock market the reality is that decoupling won’t happen until its market cap is much higher. The good news is that this shows just how early we are in crypto. We may not have bought Bitcoin at $1000, but that doesn’t matter when the upside for the crypto market cap is still 10x — 100x from where it is today.

Whatever happens at Jackson Hole it will definitely have an effect on the crypto market, just as September’s Fed meeting will also have an effect. What many seasoned traders have learned over time is that you never fight the Fed, you just watch and wait.

As one of the most famous investors of modern times, Warren Buffet, famously said, “The stock market is a device for transferring money from the impatient to the patient.”

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  • Source: Plato Data Intelligence: Platodata.ai