Federal Reserve: “We are not there yet, inflation is more stubborn than expected”

The year 2022 ended for the crypto market without fireworks and we cannot say that 2023 is very spectacular so far. The Bitcoin price is still trading below $17,000 and is starting to look more and more like a stablecoin. However, yesterday it became known what we already knew, the Federal Reserve believes they are far from there.

What does this mean?

The US central bank (Federal Reserve) has been battling inflation throughout the past year. In response to that inflation, they raised interest rates. This actually makes it more expensive to raise capital. The Federal Reserve hopes that this will cool the economy. That people are less likely to borrow money and that companies are also more hesitant to invest. That strategy seems to be working, as inflation is slowly starting to come down.

The Federal Reserve is not really satisfied and they are also concerned about the stickiness of inflation. In the minutes of the interest meeting of December 14, published yesterday, the Fed writes that inflation is “more stubborn than thought”. During the last interest rate meeting, the interest rate was raised by 0.50 percent. This means that the pace of interest rate hikes has already slowed somewhat, but we are not there yet.

No reversal yet

The pace of interest rate hikes is slowing down a bit because the Federal Reserve may also be afraid that they will shake the economy. The interest rate has been at practically zero percent for more than 10 years before 2022. You should not forget that an economy slowly gets used to this in 10 years and that there are companies that survive only thanks to low interest rates. Once you raise interest rates at the most aggressive rate in more than 40 years, don’t think it will be completely harmless.

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There is a reasonable chance that we will not feel the pain of rate hikes until next year. Slowly but surely more individuals, companies and even governments have to refinance themselves and that will undoubtedly cause problems for some at these rates.

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