What Does the Fed’s Fight Against Inflation Brings? | Daily Market Analysis

Key events:
Eurozone - ECB Monetary Policy Statement     
Eurozone - ECB Interest Rate Decision (Sep)
Eurozone - ECB President Lagarde Speaks      
Eurozone - Fed Chair Powell Speaks                

While currently struggling with record high inflation in the U.S., the Fed, according to some researchers, intends to force asset owners to rethink some buying habits, which could possibly slow demand.
The central bank's main tool - raising the interest rate - has a direct impact on the economy, in particular, lowering the value of key assets.
And while for much of this year the Fed has been optimistic about equities, preparing traders in advance for the impending tightening of its monetary policy, an abrupt turn has now been made, with the soft tone a thing of the past. Over the summer, Fed Chairman Jerome Powell announced that central bank officials would end the practice of forward guidance.

The chart above shows the United States inflation rate

While the Fed is dealing with its major dilemma, there will be a tightening of financial conditions, which will lower stock prices anyway, and probably cryptocurrencies as well, because cryptocurrency prices are highly correlated with stocks. For example, BTC has already fallen more than 50 percent since the beginning of the year amid a sell-off in crypto assets caused by industry bankruptcies and the difficult global macroeconomic situation.

The BTC/USD chart indicates a 59% drop since the beginning of 2022

The Fed's main goals: to stabilize prices and maximize employment. So far prices are unstable and inflation is well above the Fed's 2% target, but unemployment is still low, with over 300,000 jobs created last month. This is great news for the unemployed, but oddly enough, it could spur inflation, increasing the pressure on the Fed to be even tougher on it. As a result, new potential problems for risky assets such as stocks and cryptocurrencies.
For now, analysts await further action by the Fed, as new signs of economic weakness will test its resolve to fight inflation.