But they won’t.
The Fed can justify ending its tightening cycle by pointing to a looming economic recession in the US which is now being increasingly hinted at. If the Fed can credibly claim that inflation has peaked and the inflation rate slows enough that, even if prices continue to rise, they can say the worst is behind us – then they can switch to recession prevention mode without causing too much distress to the public. “Recession prevention mode” is code for printing money (QE) – as the only way the Fed knows how to prevent a recession is to loosen monetary policy by turning on the printing press and cutting interest rates. This is good for risk assets.
Figure 11 – Bond markets are pricing in Fed rate cuts in February 2023. Source – The Macro Compass
The bond markets have an inverse correlation with interest rates. They are currently pricing in interest rate cuts in Q1 2023 – this is important and adds further confluence to our hypothesised timeframe for a market bottom in late Q4 2022 – Q1 2023.
For risk assets such as $BTC, we should primarily be concerned about the dollar liquidity conditions’ rate of change and the quantity of money. The Fed’s focus revolves around the price of money through interest rates.