Is the US Fed's Interest Rate Hike a 'Policy Mistake'? Bitcoin, Gold, and Stocks All Weakening

▲ Dollar (USD), Bitcoin (BTC) ©

As Bitcoin (BTC), gold, and the US stock market all show concurrent weakness, a point has been raised that the US Federal Reserve's (Fed) interest rate hike, in response to rising oil prices, could instead be a 'policy mistake' that deepens the economic slowdown. It is argued that the surge in oil prices stems from a supply shock, not economic overheating, and therefore should not be addressed with monetary policy.

According to FXStreet, an investment media outlet, on September 2nd (local time), the cryptocurrency market, including Bitcoin, has recently been under downward pressure amid the US stock market's weakness and the dollar index's rebound. As West Texas Intermediate (WTI) crude oil rose from $70 in early July to $90, inflation concerns grew, and the market began to price in the possibility of the Fed raising the benchmark interest rate in September.

However, an analysis suggests that this rise in oil prices stems from supply disruptions due to the conflict in Iran, rather than overheating in the US or global economies. The explanation is that while rising energy prices can temporarily push up headline inflation, they act like a tax on households and businesses, potentially stifling consumption and economic activity.

While interest rate hikes cannot restore maritime shipping routes or increase crude oil supply, they can further constrict the economy's credit flow. James E. Thorne, Chief Market Strategist at Wellington-Altus, diagnosed that the oil price shock is a growth shock disguised as inflation, arguing that monetary policy should not mechanically react to headline inflation. He further asserted that tightening in such a situation could be a policy mistake masked as prudence.

Mark Zandi, Chief Economist at Moody's Analytics, also opposed interest rate hikes, stating that the basic principle is not to respond with monetary policy when a supply shock occurs. However, market expectations differ. According to the CME FedWatch tool, the probability of an interest rate hike on September 16th has risen to 68%.

If the experts' analysis is correct, the recent market weakness may not last long. However, the media reported that if international oil prices continue to rise until September 16th, when the Fed's decision is announced, pressure on risk assets, including Bitcoin, could persist.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*