Bitcoin, Gold, Stocks, and Yields Take a Beating as Fed’s Bullard Talks of Tapering

USD is the clear winner, enjoying a rally above 92.3, up from 89.5 from late in May thanks to the Fed executing rate hike next year.

The price of Bitcoin has dropped to about $36,500 today after going above $41k earlier in the week. ETH also went down in tandem to $2,227, while the total cryptocurrency market cap is now under $1.6 trillion.

However, the crypto market is not alone in feeling the woes; the stock market is also having its worst week since January.

S&P 500 has fallen to $4,177, and tech-heavy Nasdaq is at 14,066. Gold has crashed just under $1,770 per ounce, down 7.7% this month.

The US dollar index, meanwhile, is the clear winner, enjoying a rally above 92.3, up from 89.5 from late in May. All of this has been due to the Fed now starting to talk about tapering earlier than expected.

Yields on the 10 Year Treasury have also fallen to 1.467%. While yields temporary fell after this week’s Fed decision on raising interest rates, Well Fargo Securities’ Michael Schumacher expects them to end the year as high as 2.20%

“This really gets at what the people in the market are focused on: Just how long is that inflation spike going to last? Is it transient? Is it transitory? I don’t know. But it’s troubling, that’s pretty clear.”

What’s Coming?

After Fed chair Jerome Powell tries to assuage the concerns during the press conference after the FOMC meeting, saying the central bank is only “talking about talking about” tapering, St. Louis Federal Reserve President James Bullard said on Friday that Powell has officially opened the taper discussion and “there are more in-depth discussions to follow.”

When it comes to any imminent action, “the Fed needs to be ready to make adjustments if necessary,” he said, adding he sees an initial interest rate increase happening in late-2022. FOMC’s outlook was for up to two hikes in 2023.

“We’re expecting a good year, a good reopening. But this is a bigger year than we were expecting, more inflation than we were expecting,” as such natural to turn hawkish, he said.

While the economy is growing fast, with the committee hiking its outlook for GDP growth to 7% from 6.5%, this is also bringing faster-than-expected inflation; he added: “You could even see some upside risks” to price pressures.

Bullard sees inflation running at 3% this year and from there making its way to Fed’s 2% target.

However, the Fed is continuing its $120 billion monthly asset purchases, and this won’t be reducing yet as Bullard said he thinks it will take several months of discussion before the central bank decides just how to begin reducing that pace.

“These are things far in the future in an environment where we’ve got a lot of volatility, so it’s not at all clear any of this will pan out the way anybody is talking about. So we’re going to have to go meeting by meeting to see what happens.”

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