As expected, the US Federal Reserve announced a rate hike of 0.50 percent this week. That in itself was not all that exciting, because every trader had taken that into account. What people took less account of was Jerome Powell’s speech after the interest rate decision. In this he was a lot stricter than hoped.
Stern Jerome Powell
In his speech, Powell said, among other things, that interest rates will continue to rise to at least 5 percent in 2023 and will probably not fall below that level again until 2024. So we have to do it for a year without interest rate cuts and Wall Street did not expect that. The reaction we see on the stock markets is that the shares started to slide and Bitcoin has not reacted very strongly in recent days. The fear of the Federal Reserve is high, as is the uncertainty about the future.
It is increasingly appearing that both the Federal Reserve and the European Central Bank are betting on a recession to bring inflation under control. After her speech, ECB President Christine Lagarde also said that interest rates will probably have to remain at this high level for a long time to come. The reason for that is sticky inflation. In her speech, Lagarde said that the European Central Bank expects inflation to remain much higher than hoped in 2023 as well.
Recession coming?
So it looks like we will have to make do with a recession in 2023. That means there is a reasonable chance that Bitcoin and the rest of the financial markets have yet to find the ultimate bottom. On the other hand, it is also an interesting test for Bitcoin. For the first time in its life history, the digital currency is entering a global recession. Normally, gold, the shiny precious metal, does very well at those moments.
Bitcoin profiles itself, among other things, as a competitor for gold, which means that Bitcoin can sometimes be surprising. On the other hand, this could also be the time when gold shows that it still has the upper hand in this area. Most experts expect that seasoned investors still prefer the shiny precious metal to Bitcoin at times like this. However, those are expectations, so we all need to see.
What we do know for sure is that we are in for an exciting time and that 2023 will be an exciting year for the financial markets. You would almost say that it can’t get any worse than 2022 for Bitcoin, but of course you never know. At the moment it really seems to be possible in any direction and it is precisely this uncertainty that makes investing more difficult than ever.