The International Monetary Fund (IMF) recommends that the US Federal Reserve continue to raise interest rates for an extended period of time to bring inflation under control. The IMF also urged the Biden administration to tighten fiscal policy to reduce federal debt. This would mean a rate hike of 25 basis points by the Fed in June.
IMF Director Kristalina Georgieva said the US Congress also needs another way to regulate debt through the annual credit process, eliminating the debt ceiling.
“The sooner this adjustment is made, the better. It’s worth noting that the fiscal adjustment could come forward and thereby help the Fed in its efforts to reduce inflation.”
The US Federal Reserve will raise interest rates by 25 basis points in June
U.S. Fed officials currently see no pause or reversal in rate hikes and believe the FOMC should continue to raise Federal Funds rates above 6%. Currently, the federal funds rate is 5% to 5.25%.
On Friday, annual PCE core inflation, the Fed’s preferred measure of inflation, came in at 4.7% in April, up from the expected 4.6%. The labor market also remains tight. This gives the Fed more room to raise interest rates further this year.
The market expects a higher probability of a rate hike of 25 basis points in June. According to the CME FedWatch Tool, the probability of a 25 basis point rate hike by the Fed in June is 64%, compared to 17% a week ago.
The Biden-McCarthy debt ceiling deal has reached a bipartisan agreement to raise the debt ceiling for two years, with the final touches to be completed before the debt default deadline. The US Treasury Department’s cash balance falls to $38.84 billion from $316 billion earlier in May.
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Stocks and crypto markets to crash?
The stock and crypto markets will enter a correction phase as the US Treasury expects to issue $600-$700 billion in Treasury bills weeks after the debt ceiling deal. This will take the focus away from stocks and cryptocurrencies, with Bitcoin likely to fall and rise after a few weeks due to the US dollar liquidity crisis.
The US dollar index (DXY) jumped over 104.25 on Friday following the PCE inflation data. Investors should keep an eye on the US dollar and government bond yields as Bitcoin moves against them.
BTC price is trading at $26,756, up nearly 2% in the past 24 hours on positive sentiment about the debt ceiling deal. The 24-hour low and high are at $26,370 and $26,916 respectively. The crypto market cap is up more than 1% in the last 24 hours.
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Varinder has 10 years of experience in the Fintech sector, with more than 5 years dedicated to blockchain, crypto and Web3 developments. A technology enthusiast and analytical thinker, he has shared his knowledge of disruptive technologies in more than 5,000 news stories, articles and newspapers. With CoinGape Media, Varinder believes in the enormous potential of these innovative future technologies. He is currently covering all the latest updates and developments in the crypto industry.
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This post IMF backs US Fed to hike 25 basis points in June, markets will crash?
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