U.S. officials decided on interest rates yesterday. Traditional financial markets, as well as Bitcoin and cryptocurrency, had a very bearish response to the Federal Reserve (Fed) and the subsequent press conference by chairman Jerome Powell. Before dropping as low as $26,600, the price of bitcoin briefly reached $29,000.
What has altered the bull case for Bitcoin, though, is the question that arises. Despite conflicting messages from US Treasury Secretary Janet Yellen and Fed Chairman Powell, the US banking industry is still experiencing problems.
Bitcoin Waits for Next Bank Bailout
The Fed unanimously decided to increase the federal funds rate by 25 basis points (bps). No voting Fed official supported a pause or rate reduction.
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During the press conference, Powell stressed that further increases “may be appropriate” and would be decided “meeting by meeting” based on available data. He claimed that the Fed is unconcerned despite the regional banking system collapsing, but these statements are not accurate.
The Fed was certain that interest rates required a quicker increase just two weeks ago. A rate hike of 50 basis points was the default scenario. If the banking system is as “sound” as the Fed questions why it didn’t raise rates by 50 basis points. Because, as he also pointed out, the current banking crisis coincides with an increase in interest rates brought on by the credit crunch.
Powell and Yellen both spoke at the exact same time, which is also interesting. While the Fed was raising interest rates, Yellen stated that the Federal Deposit Insurance Corporation (FDIC) would not guarantee all deposits, contrary to what she had stated the day prior.
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It appears that the Fed and the US government want to project the impression that the crisis is under control. In actuality, they still haven’t come up with a plan for the banks. Powell, meanwhile, sent conflicting signals, stating that while the Fed is committed to helping the banks, no rate cuts are anticipated this year.
Pershing Square Capital Management’s founder and CEO, Bill Ackman, tweeted about this mess. In addition to making it clear that system-wide deposit insurance is not being considered, Ackman criticized Yellen for withdrawing yesterday her implicit support for small banks and depositors.
Since the rates have been raised to 5%, there has been no longer been any implicit support for depositors, according to Yellen’s explicit statement today. 5% is a threshold that makes bank deposits that much less attractive. Deposit outflows should begin to accelerate quickly, and I would be surprised if they didn’t.
Ackman contends that in order to stop the hemorrhaging of smaller banks, a temporary system-wide deposit guarantee is required. “The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back,” the renowned hedge fund manager said.