Fed is changing its strategy, pushing the dollar up, gold and Bitcoin down

The Federal Reserve System (Fed) has published the minutes of the last meeting of the Federal Free Market Committee (FOMC). The minutes described in detail a number of strategic changes that strongly affect the price of shares, gold and Bitcoin.

Interest rates remain unchanged

Fed’s management is still leaving interest rates unchanged. The current 0% reference rate is likely to remain unchanged as long as the COVID-19 crisis continues.

Regarding the outlook for monetary policy after this meeting, a number of participants said that at some point it would be appropriate to provide more clarity on the likely path to the Fed’s key interest rate target range.

The unclear share-based statement has left investors uncertain about the further economic recovery, because if the Fed is cautious, the future of economic development remains unclear at best.

Question of inflation

Interestingly, despite the massive flooding of the market with liquidity, inflation remained relatively low, below 1%. This confused the Fed, given that a substantial inflow of capital was supposed to increase inflation.

The Fed has traditionally targeted 2% inflation, using benchmark rates and liquidity as opposites to keep it within this range. However, low rates and liquidity do not seem to have had much effect on the current level of inflation.

This low inflation scenario directs investors from safe havens, such as gold and Bitcoin, back to the dollar. The dollar rose sharply during trading, while both gold and Bitcoin recorded significant losses.

Curve rounding

Finally, the Fed considered controlling the yield curve by limiting yields. This would seemingly lead investors to risky assets. This policy change forced Treasury revenues to grow, while having the opposite effect on gold and Bitcoin.

However, the Committee ruled against such activity. The reason was that low yields currently have comparable effects.

Conclusion

When stocks go up, the price of gold and Bitcoin usually falls, and vice versa. At one point, it looked like the Fed would want to target 4% inflation instead of 2%, but in the end it decided otherwise. These decisions have a significant impact on the prices of cryptocurrencies, with the exception of Bitcoin.

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