Powell Drops the Hammer on Interest Rates

The optimism that we’d only see three small additional interest rate hikes into the first half of 2023…and then none afterwards…is now gone. Jerome Powell testified in front of Congress today and was a total hawk; the Fed chief told lawmakers the central bank will likely raise interest rates higher than previously forecast to fight inflation.

Probability of the next rate hike percentage: 

Additionally, a recession signal became stronger as the yield curve inverted to a level not seen since September 1981 due to hawkish remarks from Powell. The yield on the 2-year Treasury note fell below that of the 10-year Treasury note, indicating investor nervousness about the near future compared to the long term. Typically, the 10-year Treasury offers a higher rate of return than shorter-term notes since investors’ money is committed for longer. However, when the return on a 10-year note is lower than the 2-year, it suggests investor pessimism and reluctance to invest. 

According to the Federal Reserve Bank of San Francisco, a yield curve inversion has preceded every recession since 1955. 

How will this affect Crypto? Higher interest rates tend to slow down investment into risk assets, especially with the threat of a recession looming. 

This tells me that we’re still in a “trader’s market” for the near future.