Markets ‘over-reacted’ on Brainard’s comments: Analyst

Bitcoin fell to lows of $43,520 on Wednesday after extending the weakness seen on Tuesday. The benchmark cryptocurrency’s price touched the lows as stocks also sold off amid investor reaction to comments from US Federal Reserve Governor Lael Brainard.

US stocks have extended losses seen yesterday, with S&P 500 falling 1% and Nasdaq shedding 2.2% amid investor jitters after Fed’s FOMC minutes detailed balance sheet reduction and rate hike plans.

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The March meeting’s minutes come a day after Brainard’s comments on what the Fed might need to do as it looks to address inflation that has hit a four-decade high. The Fed already raised interest rates by 0.25% and further rate hikes are expected. Cutting the nearly $9 trillion balance sheet is also an expected route.

The marketwide declines were therefore an “over-reaction”, Marcus Sotiriou, an analyst at UK-based platform GlobalBlock said in a note.

As Brainard is typically dovish, meaning she normally favours low rates and accommodative policy, global markets including Bitcoin reacted negatively. However, I think this is an over-reaction from the markets, as Brainard pointed out things that we are already aware of.”

While the central bank is expected to raise rates as planned with a 25 basis point jump set for May, Fed Chair Jerome Powell recently noted that there could be many 25 bp rate hikes in 2022. According to Powell, the Fed already has precedence of 17 rate hikes of 0.25% set in 2004.

“Therefore, unless inflation data being released next Tuesday on April 12th is significantly worse than expected, I am not concerned with how aggressive the Federal Reserve will be in the short term,” Sotiriou added.

A notable detail in the March FOMC minutes is the Fed’s likelihood of adopting a flexible approach to its balance sheet drawdown. Per the minutes, “economic and financial developments” will play a role in how it proceeds.