Data suggests that the Fed’s monetary policy could eventually break something in the US economy, but what impact could this have on Bitcoin price?
The U.S. economy has been facing turbulent times lately, with the U.S. personal consumption expenditure inflation index rising by a significant 3.5% over the past 12 months. Even when excluding the volatile food and energy sectors, it's evident that the efforts made by the U.S. Federal Reserve to curb inflation have fallen short of their 2% target rate.
Porto's comments resonate with a growing concern in financial circles—a fear that the central bank might tighten its policies to the point where it causes severe disruptions in the financial system.One of the primary drivers behind the recent turmoil in financial markets is the rise in interest rates. As rates increase, the prices of existing bonds fall, a phenomenon known as interest rate risk or duration.
Banks, which typically borrow short-term instruments and lend for the long-term, are especially vulnerable in this environment. They rely on deposits and often hold Treasuries as reserve assets. Banks are increasingly offloading their holdings to private credit and hedge funds, flooding these sectors with rate-sensitive assets. This trend is poised to worsen if the debt ceiling is increased to avoid a government shutdown, further raising yields and amplifying losses in the fixed-income markets.
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