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Goldman Sachs to Raise Fed Taper Odds This November

Fed Taper’s been said to be a headwind for Bitcoin.

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Investment banking giant Goldman Sachs sees an increased probability of the Federal Reserve aka Fed according to its economists. This will be the start of an eventual unwinding of the liquidity-boosting-stimulus program which is all set to begin this November.

Crypto analysts, some of whom are worried about said ‘tapering’ weighing over asset prices including bitcoin (BTC, -0.81%), are monitoring such calls from Wall Street very closely. The Fed has been purchasing $120 billion bonds a month as part of its post-COVID-19 economic recovery efforts in order to provide stimulus to traditional financial markets. 

New York-based Goldman Sachs per Reuters is now able to see the probability of a 45% November announcement VS the previous 25% forecast. The odds regarding the tapering taking place in December were cut down from 35% to 55%.

The Fed will taper the stimulus by $15 billion per month come November 2021, according to the investment bank’s prediction. The Fed would also reduce the transactions of U.S Treasury bonds by about $10 billion each month, as well as the purchases of mortgage-backed securities by $5 billion according to the research note. The news for this upward revision arrives just days ahead of the annual Jackson Hole symposium by the Federal Reserve Bank of Kansas City. Here Chair Jerome Powell is expected to explain the situation taking into account the Delta variant’s resurgence. 

At least $80 billion a month in treasuries have been purchased by the central bank and $40 billion in residential as well as commercial mortgage-backed securities since way back in March of 2020. This was done to counter the economic fallout due to COVID-19. 

Setting off the selling of dollars as well as buying everything denominated in dollars, these Fed liquidity injections lead up to unprecedented inflation of asset prices. 

In the case of Bitcoin, it exited with 300% gains by the end of 2020. This led to them setting new record highs that hover around nearing $40,000. Bitcoin’s still up over 300% year-on-year as the cryptocurrency has remained bid for the first 4 months of the year, and has reached $64,801, a lifetime high. 

If the Federal Reserve’s liquidity happens to run dry, Bitcoin, among other asset prices could at least give up part of the stellar gains (-1.36%) chalked out the last 1.5 years. 

CIO of Bytetree Asset Management, Charlie Morris, has mentioned “Historically that has been a headwind for bitcoin”, further stating that, “In past cycles, both the anticipation and start of tapering have tightened monetary conditions, boosting the dollar in the process.” 

“When QE stopped in 2014, bitcoin died for a while. Then in 2018, when the actual taper came about it, it was killed again,” noted Morris, as seen in the market analysis published on 23rd of August. 


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