Strong USD and Fed Policies Make for Uncertain Investment Forecasts

Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.

Last month, the FOMC raised interest rates by 75 basis points, bringing the current federal funds rate to 3-3.25%.  Chairman Powell’s press conference comments reiterated the same hardline policies he voiced from Jackson Hole in August.  This time around, the markets were better equipped to handle the immediate fallout of the hike as the FOMC has made it clear that aggressive rate increases are imminent for the remainder of the year.  Many have begun to speculate that the central bank policy stance will change in light of the strengthening dollar and slowing inflation rate, however the Fed and Chairman Powell are unconvinced that softening economic policies will avoid a recession.  

While the dollar has gained strength, some countries, namely Japan and Chile, are offloading large amounts of USD as a means to boost and protect their native currency.  Presently the USD is strong, but this spells trouble for both developed and developing economies alike.  As it stands, other nations may entertain exchanging their reserve dollars should inflation and other macroeconomic mechanisms continue to batter the vulnerable global economy.  Two of the outliers are the Mexican peso and the Brazilian real, which have managed to gain against the dollar.  The proactive policies of their central banks, months ahead of the Fed, indicates how significant a role timely policy action has to play in calming inflation.    

A sign of minor relief came as the price of gas eased over the past month, but it has not done enough to diminish the bear market for stocks, crypto, and currencies especially in light of the recent sabotage to the Nord Stream Pipelines.  The explosions and subsequent damage to the pipelines will have significant long term effects on a political, environmental, and economic scale but more importantly it signifies how fragile and vulnerable the infrastructure of the energy lifeline to Europe is as we enter the colder seasons.  The U.S., on the other hand, benefits from its isolation from a myriad of neighboring geopolitics and energy dependence.   Nevertheless, America’s economy tethered to the performance of its oversea peers.  The interdependence of markets has shown time again that no individual economy can remain sheltered long term.  

Global concerns remain outside the purview of the Fed, who have made it clear that domestic performance is their prime directive when it comes to policy.  As a leader in the global community, many other nations will follow suit with the Fed line of thought. Macroeconomic implications of aggressive central bank policies, energy crisis, and inflation will leave little room for investments into fledgling industries like Web3 and volatile assets like cryptocurrency.  There’s far too much political and economic uncertainty at the moment, as most investors take predictive guesses on which way the charts will lean. As a whole the crypto markets have held steady ground and weathered the storm of its critics but it's unlikely to see strong upward trends until central bank policies loosen and political and economic stability bring back investor confidence.