The Federal Reserve has rattled financial markets, including crypto, after releasing minutes from the April 28-29 FOMC meeting. The document reveals a majority of officials are now discussing the possibility of raising interest rates if inflation remains stubbornly high.
Inflation currently sits at 3.3% year-over-year, well above the Fed's 2% target. The federal funds rate has been held at 3.50% to 3.75% since March, but market expectations for a June cut have collapsed to around 5%.
A key driver of persistent inflation is rising global energy prices, fueled by geopolitical tensions in the Middle East, particularly involving Iran.
For crypto, higher interest rates typically strengthen the U.S. dollar, putting downward pressure on risk assets like Bitcoin and altcoins. The hawkish signal has already reinforced bearish sentiment across digital asset markets.
Adding complexity, Kevin Warsh has emerged as a potential successor to the Fed chair, with a reputation leaning decidedly hawkish.
Investors should watch upcoming CPI and PCE readings. If inflation moves toward 2%, the rate hike narrative could soften. But if the 3.3% level proves to be a floor, the probability of an actual hike climbs.
Bitcoin's correlation with equities, particularly the Nasdaq, will be a key metric to monitor.