Bitcoin's Direction Amid Oil Price and Interest Rate Storm

Ahead of the September Federal Open Market Committee (FOMC) meeting, the probability of an interest rate hike, according to FedWatch, stood high at around 87%. Most market participants consider an interest rate hike a foregone conclusion. However, some experts, including Jeffrey Gundlach, have raised the possibility of a pause, continuing the debate. Both a hike and a pause are expected to have significant repercussions on the market, drawing attention to the Federal Reserve's decision.

Macro data analyzing the ISM Manufacturing Prices Index and Employment Index shows that current employment is strong and price burdens are increasing, placing it in the upper right quadrant. This indicates a situation where a rate hike can be accepted as the norm, unlike past recessionary periods. Experts assess that current macro indicators support the necessity of a rate hike.

Renowned crypto journalist Eleanor Terrett reported on her Twitter that former President Donald Trump agreed to approximately 80% of the revised ethics provisions. This news caused short-term volatility in the market and drew investors' attention.

Core inflation peaked in May this year and has since been declining, but a divergence from headline inflation still exists. In this situation, the Fed is showing strong determination to control inflation expectations. Even though falling core inflation could weaken the need for a rate hike, the Fed remains wary of a resurgence of inflation.

Federal Reserve Chair Jerome Powell has consistently emphasized the importance of controlling inflation expectations. An analysis of the spread between 30-year (inflation-adjusted) and 2-year (policy rate-adjusted) Treasury yields showed that inflation expectations had calmed for a while after the Jackson Hole meeting. However, recent oil price increases are raising concerns that inflation expectations could resurge.

If grocery prices rise, inflation expectations are also likely to increase. This causes a discrepancy between statistical inflation and actual perceived inflation.

This suggests that the inflation level consumers actually feel could reach 7%. Apart from official inflation indicators, rising export and import prices directly affect living costs and contribute to higher perceived inflation.

Such a surge in electricity prices negatively impacts inflation expectations and adds to overall upward inflationary pressure.

This impacts various industrial sectors, such as rising diesel prices leading to increased costs for agricultural heavy machinery. In particular, geopolitical factors like the suspension of fertilizer exports are fueling agricultural product price increases, raising overall inflationary pressure.

The current trend of the Consumer Price Index (CPI) is strikingly similar to the 10-year sideways market from 1966 to 1982 and the stagflation era of the 1970s, which saw the first and second oil shocks. This similarity amplifies concerns that current inflation could lead to stagflation. Therefore, controlling inflation expectations through interest rate hikes is deemed even more urgent.

AI companies tend to excessively burn cash for investments, raising concerns about credit risk. A significant interest rate spread is observed between AI and non-AI companies in the investment-grade and high-yield corporate bond markets. Currently, AI corporate bond yields are high, ranging from 7-12%. Despite a significant portion of U.S. GDP growth coming from AI investments, these cash-burning investments increase uncertainty about future profitability.

This deepening fiscal deficit raises serious concerns about budget and debt issues. There is growing interest in the ripple effects of the deteriorating U.S. government's fiscal health on the global economy.

Unlike in the past, he is actively engaging in public activities such as press conferences and external speeches, and the content of press conferences plays a more crucial role in understanding policy direction than the dot plot. This enhanced communication is seen as an effort to reduce market uncertainty and clearly convey the Fed's message.

While the Fed's primary mandate is price stability, statements from the Treasury Secretary and the government's stance could also influence the Fed's policy decisions.

Due to structural factors, there is a possibility that an era where long-term Treasury yields average over 5% may arrive. This is based on the outlook that structural interest rate increases will continue due to debt issues and deglobalization. From this perspective, gold and Bitcoin could emerge as promising investment assets for a 'debasement trade'.

Bitcoin prices are believed to have somewhat priced in these potential interest rate hikes. Current rate increases are driven more by structural issues and debt burdens than growth, and the correlation between a falling dollar index and rising Treasury yields also acts as a variable influencing Bitcoin prices.

Judging that military force alone would not achieve its goals, the U.S. shifted tactics toward strengthening economic pressure. Indeed, the economic impact is becoming visible, with Iran's inflation rate reaching 90%. If this economic blockade continues long-term, it could increase the likelihood of Iran coming to the negotiating table.

It is necessary to continuously monitor macroeconomic indicators and the Fed's actions to understand the trends in the Bitcoin market.