Bitfinex Alpha: In the fluctuation of Bitcoin, inflation rises again

On February 21, according to the Bitlinex Alpha report, data showed that the Federal Reserve may raise interest rates by more than 25 basis points in the future. Inflation intensified in January this year. Although the overall CPI fell year-on-year, some categories of consumer spending showed that inflation continued. All these factors together, the Federal Reserve may delay the recovery of the target interest rate of 2%.

Interpretation of this information:

The Bitlinex Alpha report from February 21 suggests that the Federal Reserve may increase interest rates by more than the expected 25 basis points in order to address the continued inflation in some consumer spending categories. Although the overall Consumer Price Index (CPI) fell year-on-year, certain areas of consumer spending have exhibited ongoing inflation. As a result, the Federal Reserve may choose to delay the recovery of its target interest rate of 2%.

It is important to first define what is meant by the Federal Reserve’s target interest rate. The Federal Reserve aims to keep inflation low and stable, while also promoting maximum employment and economic growth. One of the tools it uses to achieve this goal is changing the target interest rate, which is the interest rate that banks charge each other for overnight loans. When the target interest rate is lowered, it becomes easier for individuals and businesses to borrow money, which can stimulate spending, investment, and economic growth. Conversely, when the target interest rate is raised, borrowing becomes more expensive, which can slow down spending and investment, but also help to control inflation.

The fact that some areas of consumer spending continue to exhibit inflation despite an overall decline in the CPI is concerning for the Federal Reserve. It suggests that certain sectors of the economy may be overheating, which could eventually lead to broader inflationary pressures. Raising the target interest rate by more than 25 basis points could be a way to tackle these inflation risks before they become more pronounced.

At the same time, raising interest rates comes with its own risks. If borrowing becomes too expensive, it could depress spending and investment, ultimately leading to slower economic growth. Additionally, although the overall CPI fell year-on-year, it is possible that other measures of inflation (such as the Personal Consumption Expenditures Price Index) could show a different picture. The Federal Reserve will need to carefully weigh these factors when making a decision on whether to raise interest rates and by how much.

In summary, the Bitlinex Alpha report suggests that due to ongoing inflation in certain areas of consumer spending, the Federal Reserve may raise interest rates by more than 25 basis points and delay the recovery of its target interest rate of 2%. This decision would aim to keep inflation low and stable while also promoting maximum employment and economic growth, but comes with its own potential risks.