Next week could prove pivotal for markets including bitcoin as seven major central banks, including the powerful Federal Reserve, announce interest rate decisions amid war-fueled oil price rises that threaten to reignite inflation in the global economy.
This week’s packed economic calendar includes the Reserve Bank of Australia (RBA) interest rate decision on March 17, followed by the Bank of Canada (BOC) and the Fed on March 18, and concludes with the Bank of Japan (BOJ), Swiss National Bank (SNB) and European Central Bank (ECB) on March 19.
Until recently, markets expected most major central banks, led by the Fed, to steadily cut interest rates (or avoid tightening) this year. The rapid emergence of artificial intelligence as a disinflationary force—with the potential to disrupt the labor market—had reinforced this bias for lower borrowing costs. These prospects supported risk assets, including Bitcoin.
The war, which began on February 28 with coordinated US and Israeli attacks on Iran that have since involved widespread retaliatory strikes and disrupted energy shipments through the Middle East, has thrown a wrench into that view.
Rising oil prices have fueled inflation concerns, forcing traders to reassess interest rate expectations. Some fear that central banks will respond to the evolving inflationary macroeconomic situation with higher borrowing costs.
As such, hawkish hints next week could trigger downside volatility across risk assets, including Bitcoin. This scenario looks plausible as policy makers – remembering their 2021-22 misstep when they called inflation transitory and were proven wrong – may be extra quick to curb rising price pressures this time around.
If they remain neutral or data dependent in a wait-and-see mode or play down inflation fears, risk assets could rise. This possibility cannot be ruled out either.
“Like all supply shocks, the first Fed response to an oil price increase is to look and assess the damage,” economist and Fed observer Ethan Harris said in a LinkedIn post.
“There are two reasons for this hesitation. First, oil shocks simultaneously slow growth and increase inflation. Before moving, the Fed wants to figure out what the biggest problem is. Second, most such shocks are transitory. The Fed doesn’t want changes in rates, only to reverse the move weeks later,” he explained.
Historically, only the Fed – and possibly the BOJ – have exerted meaningful influence on Bitcoin prices. With oil prices already straining all corners of Japanese society, next Friday’s BOJ decision could prove particularly crucial for both domestic markets and bitcoin.
