Experts Fear Unusually Large Interest Hike, Is Crypto Crash Unavoidable?

Fed chair Jerome Powell took an aggressive stance at the annual Jackson Hole speech. The annual conference, hosted by the Kansas City Fed, is a gathering of esteemed economists to lay down the Fed’s economic policy. His aggressive stance has many experts fearing a crypto crash.

Todd Horowitz, the founder of BubbaTrading.com, believes that the Federal Reserve will hike the interest rate by 100 bps. In such a case, the crypto markets might witness a bloodbath.

Will Interest Rates Crash Crypto Markets

Recent data has revealed extremely high inflation. The Federal Reserve is responsible to cool inflation through aggressive policymaking. One of the ways to do so is by hiking interest rates.

A larger-than-expected interest rate hike also results in a bloodbath in the market. Following June’s CPI data release, which showed the highest inflation in four decades, the Fed raised interest rates by 75 bps. As a result, the markets, including the crypto market, plummeted. 

Recent CPI data did not cause similar volatility as high inflation levels were already priced in. The expectation was that since inflation will eventually cool, the Fed will pivot. Back-to-back favorable inflation data reinforced this narrative.

However, key Fed officials took an aggressive stance. James Bullard of St. Louis and Neel Kashkari of Minneapolis called for a Volcker-esque stance from the Fed. With Jerome Powell promising pain to households and businesses in the future, a large interest hike seems all but imminent. 

It seems unlikely that despite Fed’s aggressive stance, a 100 bps hike will be priced in. As a result, such a move could result in major volatility and a crypto crash.

CME Fed Watch Provides Hope

The Consumer Price Index for the month of August was revealed to be lesser than expected. The recently released PCE data also showed cooling inflation. It could be possible that the Fed sticks to a 75 bps hike, which has more of a chance to be priced in. 

The CME Fed Watch tool currently shows a 61% chance of a 75 bps hike and a 39% chance of a 50 bps hike. It does not show any likelihood of a 100 bps rate hike.