Thoughts on Bitcoin Bulls: Implications of Fed Inflation and Rates News

Author: Stephen Alpher, CoinDesk; Compiler: Songxue, Jinse Finance

**Bitcoin suffered one of its steepest losses ever on Thursday, at least in part because of the realization that a stronger economy means interest rates are likely to keep rising. **

Stronger-than-expected data on consumer spending and new home sales in July last week prompted the Atlanta Fed's GDPNow tool to raise its forecast for rapid third-quarter (July-August-September) GDP growth to 5.8%.

These kinds of numbers typically come after a recession ends, and the only time the U.S. has experienced such rapid growth over the past decade has been in the quarters following the 2020 crash.

After weeks of hovering in a tight range between $29,000 and $30,000, Bitcoin (BTC) fell to a low of $28,000 Thursday afternoon on economic news. This in turn sparked a series of stops and liquidations that sent Bitcoin swiftly below $25,000. A modest recovery since has brought the price back to $26,000 at press time.

**Higher interest rate, longer duration? **

This week will feature the Kansas City Fed's annual Jackson Hole Economic Symposium as well as a Friday morning keynote address by Fed Chairman Jerome Powell.

The talk followed a Monday morning op-ed by The Wall Street Journal's Nick Timaros, known as the "Fed Whisperer" for his close ties to the Fed, suggesting that officials believed the so-called neutral Interest rates are likely to be much higher than previously expected. It's a rather quirky topic, but the gist is that** the Fed's benchmark fed funds target -- currently at 5.25%-5.50% -- is likely to remain elevated for longer than market participants expect. **

Consider a higher inflation target

On Monday, the Journal also published an op-ed by Jason Furman, the president's top economic adviser during the Obama administration, urging the Fed to consider raising its inflation target from 2% to 3%.

"Higher targeting also helps cushion the economy from a severe downturn," Furman wrote. "When the economy slows, rising inflation means that price increases and wage freezes are likely to increase for businesses looking to cut costs. would be a much less unpalatable alternative to mass layoffs."

What this means for Bitcoin

Opinions will vary as to a higher neutral rate or faster target inflation, but the bond market was quick to react to both news --** 10-Year Treasury Yield Monday morning Soared 9 basis points to a 16-year high of 4.34%. **

Interest rate-linked instruments compete with risky assets like Bitcoin for investors’ money, and higher interest rates mean less market interest in Bitcoin, that is, when you can trade in a 6-month CD Why buy BTC when you can earn 5% risk-free in .

On the other hand, if the Fed said it would allow inflation to rise above its current 2% target, it would be an official acknowledgment of currency debasement, something Bitcoin fans have been warning about.