A hawkish Fed delays the liquidity trade

Two headwinds now limit the prospect of a meaningful breakout in bitcoin: the setback to the CLARITY Act and a more hawkish Federal Reserve. Neither changes the longer-term thesis, but both push the timing of a sustained recovery further out.

A hawkish Fed delays the liquidity trade

Inflation remains too high, progress back towards 2% has not been sufficient, and policymakers continue to characterise the economy and labour market as relatively strong. The more important surprise was not the expected rate hike itself but the removal of expected easing through 2027 in the dot plot.

That supports the dollar and short-dated yields and delays the liquidity conditions bitcoin has responded to. With Iran still contributing materially to inflation through higher energy prices, a further rate hike this year looks increasingly plausible.

For portfolios this is a difficult setup into year-end. A decisive break above US$80,000 is unlikely without either a meaningful improvement in the inflation outlook or a significant change in monetary policy expectations. Without a resolution to the Iran conflict, oil prices remain an inflationary pressure and the Fed has little incentive to soften.

CLARITY slips, and the pain is uneven