BlackRock Issues Stark Fed Warning After Huge Bitcoin and Ethereum Boom
BitcoinBTC, ethereum and other major cryptocurrencies have soared higher in the first three months of 2023 – with some predicting that the massive price rally may just be underway.
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Bitcoin price, after a brutal crash in 2022, has rallied around 70% since early January as traders increasingly bet the Federal Reserve is close to declaring victory in its war on inflation or risks triggering hyperinflation.
Now analysts at the world’s largest asset manager BlackRockBLK have warned the market that it is wrong to bet that the Fed is about to turn a blind eye, and predict that higher interest rates are here to stay.
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“We believe the Fed could only deliver the rate cuts priced in by the markets if a more severe credit crunch took hold and caused an even deeper recession than we expect,” the BlackRock strategists wrote in a note seen by Bloomberg.
The banking crisis that engulfed Silicon Valley Bank, Signature Bank and Silvergate before spreading to Europe is believed to have been partly caused by the Fed’s rapid series of rate hikes, adding to expectations that the Fed will be forced to cut interest rates in the coming months. However, banks have stabilized this week, fueling hopes that the problems are contained.
“This damage is now front and center — central banks are finally forced to confront it,” BlackRock analysts wrote. “We think this means they are set to enter the new phase of taming inflation that we have been flagging. We see major central banks moving away from a ‘whatever it takes’ approach, halting the upswings and entering a more nuanced phase that’s less about a relentless fight against inflation, but still one where they can’t cut interest rates.”
Bitcoin, ethereum and the broader crypto price boom so far this year has been driven by “continued confidence in an impending rate cut by the Federal Reserve,” Alex Kuptsikevich, senior market analyst at FxPro, wrote in a note.
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Earlier this month, Fed Chairman Jerome Powell told Congress that there is still a “long way to go” in reducing inflation, which rose to a 40-year high in 2022. Spending, hiring and consumer confidence have held up better than anyone expected they were supposed to do. despite the Fed’s hawkish stance.
“With consumer resilience again shining through, there are growing expectations that the Federal Reserve may raise interest rates again at its next meeting, but it is still believed to be near the top of peak rates, especially as bank lending is expected to tighten, causing a drag on the economy ,” Susannah Streeter, head of money and markets at broker Hargreaves Lansdown, wrote in an email.
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