The risk of more rate hikes is not priced in

How would rate more hikes affect Bitcoin?

We have a weird economy going on in the US right now.

The job market is tight. The US consumers are spending a lot. And that keeps inflation higher than is comfortable.

That's happening on the backdrop of the federal government creating a lot of debt. That debt helps fuel the economy. But since interest rates are nowhere close to zero that debt is expensive to service.

And on the side of the Federal Reserve we have a nominal QT with stable high rates and the balance sheet continuing to shrink. 

Try to put all this together... something doesn't add up. That’s a risk.

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The risk of more rate hikes is not priced in

The takeaway

The financial markets have been pricing in rate cuts for more than a year. How that has affected the financial conditions plays a big part into why we are in a bull market right now.

But as inflation is proving to be hard to tame completely, the Fed Funds rate futures no longer see a lot of rate cuts. 

And while this is not the most likely scenario there is a case to be made for the Fed raising rates again. That would bad news for the financial conditions and would negatively affect the Bitcoin bull market.

We are not there yet but you need to pay attention to a pivot in the financial conditions.

Sticky inflation is not a surprise