What Does Fed Pivot Mean? How Will It Impact Bitcoin and the Crypto Market?

The Fed or The Federal Reserve is the name of the Central Bank of America which is an authority body with the function of helping regulate the money supply and maintaining economic stability with the government.

In its duties, the Fed has one main goal, which is to control inflation with monetary policies or policies that are directly related to the financial and banking systems.

To maintain economic stability and inflation, the Fed often makes a "pivot" in monetary policy, which accounts for almost all financial assets in the world. This article will explain what exactly is meant when the Fed makes a "pivot".

What Does Fed Pivot Mean?

In order to understand what a pivot is by the Fed, it must first be recognized that there are two types of monetary policy.

In order to maintain economic stability and inflation, the core of the policies carried out are two things, namely increasing or decreasing the money supply.

Policies that aim to reduce the money supply are called contractionary policies and policies that aim to increase the money supply are called expansionary policies.

In the world economy itself, there are two types of policies in general, namely monetary and fiscal policies. Monetary policy is a policy formed and implemented by the central bank, while fiscal policy is a policy formed and implemented by the government.

For the central bank itself, especially the Fed, there are three monetary policies, namely determining the benchmark interest rate, open market operations, and setting the percentage of reserve funds for commercial banks.

All of these policies are applied to commercial banks that deal directly with the public in order to reduce or increase the money supply.

Regarding the policy of setting a reference rate, the ultimate goal is to increase or decrease the amount of loans and savings made by the public, whereby when the benchmark interest rate rises, bank interest rates rise, and people tend to borrow less and save more.

Reduced loans and increased savings caused by high interest rates which lead to a reduced amount of money in circulation because everything is stored in banks.

Regarding the policy of open market operations, the central bank will buy commercial bank bonds in order to increase the money commercial banks can use and end up increasing the money supply.

Regarding the policy of establishing a reserve fund, the lower the reserve fund, the more loans can be made, resulting in more money in circulation.

These three examples are examples of expansionary monetary policies that are generally carried out when inflation is low. However, after this policy is implemented, inflation will generally rise high so that the policy will change to reduce the money supply by doing the opposite of what was previously done.

When these changes occur, the central bank, or in this case, the Fed, has succeeded in pivoting to adjust to the needs of the economy.

Impact on Bitcoin and Crypto Markets

When the Fed makes a pivot, there is generally a significant impact on the movement of the majority of financial assets in the world. This is because when a pivot occurs, the value of the US Dollar will be affected.

Seeing the dominance of the US Dollar which is still very large in the world, especially in the financial world, this has affected the majority of financial asset values, for example stocks and crypto which have a negative relationship with the US Dollar.

In short the Fed Pivot will make stock prices fall for the short term. In the long run, stock prices will rise, much like after the dot.com bubble