Is the US Federal Reserve Heading for a Massive Crash for Bitcoin and Stocks?

The first three months of 2024 were marked by an unexpected rise in inflation in America. The result? The market had to drastically reduce its expectations about the number of interest rate cuts (positive for Bitcoin). At the beginning of 2024, the market expected 6-7 interest rate cuts, while now there are only 2.

How is that possible? Why have those expectations changed drastically? How could inflation suddenly pick up? And what do these developments possibly mean for Bitcoin and the rest of the financial market?

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Why is inflation rising again in America?

Starting with rising inflation in the United States. How can that happen all of a sudden? Have all the interest rate increases by the US central bank (Federal Reserve) really been in vain?

It goes too far to say the latter, but the error is probably in December. In the run-up to that month’s interest rate meeting, Fed Chairman Jerome Powell said his central bank would likely not need to raise interest rates again to bring inflation back to 2.0%.

During the interest rate meeting, the Federal Reserve announced that it expected 3 interest rate cuts before 2024. The market then bet on 6-7 interest rate cuts and a 20% chance was even priced in on the futures market for 10 (!) interest rate cuts in 2024.

Partly for this reason, shares and Bitcoin skyrocketed during the first quarter of 2024. For the American S&P 500, this was an increase of approximately 10%, which was on top of the 26% increase in 2023.

The rise in the price of the S&P 500, among others, caused a so-called wealth effect. By starting a massive rally in financial assets, the Federal Reserve essentially injected new capital into the economy.

Not by printing money, but by inflating stock valuations, by driving the market crazy about the number of interest rate cuts in 2024. They should have acted on that immediately.

What happened? People feel rich, start spending money, use their credit cards and buy a lot of stuff. The result? A new revival of inflation! That’s exactly what we saw at the start of 2024. Month by month, inflation built up to the terrifying point we are at now.

To solve that, the US central bank may have to do the opposite.

They need to crash the stock markets.

Crash coming for Bitcoin and stocks?

Could it be that the US central bank is now taking an extremely strict stance because they hope the stock market and the rest of the financial markets will crash?

In theory that would work for one other way around wealth effect can cause people to no longer be able to spend, no longer feel rich and inflation to decline.

Reducing inflation is of course the main goal of the US central bank, so it would not be a bad idea for them to crash the stock markets. In theory, this could also have significant consequences for the Bitcoin price.

If we have the crash, at least the US central bank will not come to the rescue. What do you think? Will we have a crash or will the bull market continue quietly?

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