What is the impact of the announcement of the Federal Reserve's decision on the digital currency market?

Late last night Beijing time, the Federal Reserve announced the latest resolution. Almost all investors in the investment market are paying attention to this agreement, because it will determine the liquidity of the US dollar and the looseness of the entire financial environment in the future. And this is directly related to the future trend of the investment market, including the digital currency market.

The result of the resolution is to maintain the current easing unchanged, as I expected before.

After the release of the US inflation index for May a few days ago, the 5% inflation index has made many investors very worried about whether the dollar will be so loose in the future. Some readers left a message to ask this question after the article.

Combined with the public resolution of the Federal Reserve this time, we will have more practical materials to support this topic when we talk about it again.

We actually have rules to follow for the general judgment of the Fed’s policies this term: those are the two indicators that the Fed itself has repeatedly emphasized: one is the inflation rate and the other is the employment rate. The Fed has long made it clear that both indicators must be met before changing policy. So we should not just look at one of the indicators, such as the inflation indicator, and judge the next policy based on it. This is what we must keep in mind when interpreting the policy.

As for the specific values ​​of these two indicators, the Federal Reserve did not expressly express them, but only expressed them in vague words. This is to leave room and flexibility for itself to control policies.

For inflation indicators, the Fed's statement is "an average inflation rate of 2% over a period of time." How long is it here? He didn't say so. As for the employment indicators, I don't have any specific hints in my impression.

We have to look for the information that has not been clearly stated or specifically prompted from the resolutions it announced. In this resolution, I have extracted several pieces of information that I consider to be critical:

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run”

The committee seeks maximum employment and longer-run inflation measures of 2 percent.

“Inflation has risen, largely reflecting transitory factors”

Higher inflation largely reflects temporary factors.

“With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent.”

Current measures of inflation are persistently below this long-run measure of inflation, and the Committee will seek to achieve inflation moderately above 2 percent for a period of time to achieve this long-run objective.

“The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

The Committee decided to continue to maintain interest rates between 0 and 0.25%, and to maintain this interest rate until the labor market has reached the maximum employment rate identified by the Committee and inflation indicators have reached or even moderately exceeded 2% for a period of time.

“Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.”

Voting results in favor of this resolution: 11 out of 12 people are in favor of this resolution.

Note: The above original text is quoted from:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

The information I got from these original texts is as follows:

1. The goals set by the Committee remain unchanged, that is, both employment and long-term inflation must be met before policy can be changed.

2. What the committee is looking for is maximum employment. The current job market is obviously not satisfactory. As long as this does not improve, the interest rate will continue to be 0.

3. Although inflation is currently picking up, it is still only a temporary state of reaction in the view of the Fed.

4. Again, inflation refers toin a period of timeUp to 2% or even moderately over 2%.

5. In the Federal Reserve's model, the current inflation rate, which has frightened many market participants, is still lower than 2% when converted to the growth-term inflation rate.

6. Eleven of the twelve committee members were in favor of the outcome.

So the tone of the entire statement remains unchanged in my opinion, and the vast majority of Fed members agree that the loose situation will last for a while.

But as soon as the decision was announced, the market plummeted. why? Because there are still some expressions in the resolution, such as the Fed’s statement that it will change its policy if it thinks that the situation has changed, and the market estimates that interest rates may be raised twice in 2023. These expressions and estimates are “hidden dangers” in the eyes of Wall Street.

In fact, in my opinion, this is more like another threat from Wall Street, because this kind of slightly vigilant expression is an obstacle for them to boldly embrace the bubble, so they are not happy enough, so they put on the appearance of "playing dead" again.

As far as the trend of the digital currency market is concerned, so far, I think the bull market may last until next year at most, so what we need to pay attention to is not how many times to raise interest rates in 2023, but whether the period from now to next year will be Water will continue to be maintained.

Now combined with this statement, I think that the possibility of continuing to release water this year is increasing, so this year, the overall looseness of the market is unlikely to change fundamentally.

Therefore, we still maintain a calm state of mind and continue to pay close attention to the development of the market.