The International Monetary Fund (IMF) is advising the US Federal Reserve to maintain its interest rate hikes for an extended period in an attempt to monitor inflation. The IMF also encourages the Biden administration to adopt a more stringent fiscal policy to minimize federal debt, potentially resulting in a 25 bps rate hike in June by the Fed. IMF Managing Director Kristalina Georgieva suggests that the US Congress should also implement a debt regulation strategy, rendering debt ceiling brinkmanship obsolete through the annual appropriations process.
According to Georgieva, “The sooner this adjustment is put in place, the better. It is worth noting that the fiscal adjustment can be front loaded, and by doing so it would help the Fed in its efforts to reduce inflation.” Despite this, US Fed officials do not anticipate a pause or pivot to interest rate hikes. They believe that the FOMC must continue to increase federal funds rates to over 6%, from the current rate of 5% to 5.25%.
In addition to the IMF’s suggestions, the annual PCE core inflation, the Fed’s preferred inflation measure, came in at 4.7% in April, surpassing the expected 4.6%. Additionally, the tight jobs market provides the Fed the opportunity to persist in raising interest rates. The market now predicts a higher likelihood of a 25 bps interest rate hike in June, with the FedWatch Tool indicating a 64% chance compared to just 17% a week ago.
With the Biden-McCarthy debt ceiling agreement gaining bipartisan support to increase the debt ceiling for two years, the US Treasury Department’s cash balance has plunged from $316 billion to $38.84 billion. Consequently, the stock and crypto markets could enter a correction phase as the US Treasury Department anticipates issuing $600-$700 billion in Treasury bills in the coming weeks. This shift in focus away from equities and cryptocurrencies may lead to a temporary decrease in Bitcoin value, followed by a subsequent increase due to the US dollar liquidity crunch.
Presently, the BTC price is at $26,756, with a 2% increase over the past 24 hours thanks to positive sentiment surrounding the debt ceiling agreement. The crypto market cap also grew by over 1% in the same time frame. Investors should pay close attention to the US dollar and treasury yields given their inversely proportional relationship with Bitcoin.
While the author and publication do not assume responsibility for personal financial loss, it is essential to conduct thorough market research before investing in cryptocurrencies, as the presented content may reflect personal opinions and is subject to market fluctuations.