Cryptocurrencies are traded cautiously. The rally in bitcoin, the leading digital asset by market value, has stalled since last Wednesday, with prices retreating to just under $64,000 from a high of nearly $67,000.
July hike to end forward guidance
Citadel’s call to raise rates has less to do with where the data lands and more to do with tactics, specifically why Warsh has more to gain from raising rates today than from waiting until September.
A surprise rise on Wednesday, writes Frank Flight, head of macro strategy at Citadel Securities, “would emphatically end the era of forward guidance in which every policy move is pre-signalled and acts as a clearing event, forcing markets to price in what the data implies the central bank should do rather than what they expect it to do.”
It would also “clearly underscore the independence of the Federal Reserve after two years in which it has been repeatedly questioned.”
Forward guidance is a tool central banks use to signal how they expect interest rates to evolve in the coming months, helping households and businesses adjust consumption, investment and borrowing without sudden shocks.
However, over time, according to many, including Warsh, forward guidance has distorted the market reaction function to the point where assets began trading on expectations of how the Fed might respond to the news and data, rather than the underlying data itself.
