Low inflation or crash: Fed has no choice but to keep raising rates, analyst says

As economic conditions continue to deteriorate, financial experts around the world are increasingly pointing the finger at the Fed after it was slow to respond to rising inflation early on.

Financial markets are currently experiencing some of the worst losses in recent history, and there doesn't appear to be any signs of easing. The tech-heavy Nasdaq fell another 2% on May 24, while popular social media company Snap lost 43.1% of its value in trading on May 23.

Much of the recent turmoil is back at the Fed, which has embarked on its mission to raise interest rates to keep inflation in check, and financial markets will be damned.

Here’s what a few analysts have to say about the process and what it means for Bitcoin’s (BTC) price going forward.

Will the Fed tighten before the market crashes?

Unfortunately for investors looking for short-term relief, economist Alex Krüger believes that "the Fed won't stop tightening unless markets crash (far from that) or inflation falls sharply for * * * months."

A major issue weighing on traders' psychology is that the Fed has yet to articulate what level of inflation needs to be before they let off the gas on rate hikes. Instead, the Fed simply reiterated its target: "'Seeing clear and convincing evidence that inflation is declining,' close to the 2% objective."

According to Krüger, the Fed "needs to see average monthly inflation fall by 0.25%-0.33% year-over-year by September" to achieve its goal of reducing inflation to a range of 4.3%-3.7% by the end of the year.

Krüger warned that if the Fed fails to meet its personal consumption expenditures (PCE) inflation target by September, the Fed could initiate "more rate hikes beyond the price range" and start exploring the sale of mortgage-backed securities (mbs), as part of a quantitative tightening campaign.

Krüger said:

"At that point, the market will start to shift toward a new equilibrium and sell off sharply."

Prepare for persistent double-digit inflation

Billionaire investor and hedge fund manager Bill Ackman also addressed the Fed's responsibility for current market conditions, advising that "the only way to stop today's rampant inflation is to aggressively tighten monetary policy, or the economy collapses."

In Ackman's view, the Fed's slow response to inflation has severely damaged its reputation, and its current policies and guidance "are setting the stage for sustained double-digit inflation that can only be achieved through a market crash or aggressive rate hikes." to stop."

As a result of these factors, demand for stocks in 2022 has weakened -- as evidenced by recent share price declines, especially in the technology sector. For example, the tech-heavy Nasdaq has lost 26% this year.

With the crypto industry highly focused on tech, it is no surprise that weakness in the tech sector translates into weakness in the crypto market, a trend that is likely to continue until high inflation is resolved in some form.

How will Bitcoin enter 2023?

According to Krüger, "The base case for the upcoming price trajectory is a summer range, starting with a rally followed by a pullback to the lows."

Krüger said:

“For BTC, this rally will bring the price back to where the Luna sell-off started (34k to 35.5k).”

Crypto trader and anonymous Twitter user Rekt Capital provided further insight into price levels to keep an eye on good entry points ahead, posting the following chart showing Bitcoin relative to its 200-day moving average.

Rekt Capital says:

“#BTC has historically tended to bottom at or below the 200-MA (orange). As such, the 200-MA tends to present opportunities for $BTC investors (green) with super-high ROI. [...] .] If BTC does reach support at the 200-day moving average... it would be wise to watch.”

Currently, the total market capitalization of cryptocurrencies is $1.258 trillion, with Bitcoin dominance at 44.5%.