Bitcoin drops to $27K as Fed’s Mester supports continued tightening

Bitcoin faced selling pressure on Wednesday after a high-ranking official from the Federal Reserve (Fed) stated that there is no convincing reason to stop tightening liquidity. The Fed’s strict tightening measures have disrupted risky assets, including cryptocurrencies. In an interview published on Wednesday, Loretta Mester, President of the Federal Reserve Bank of Cleveland, said, “I don’t really see a compelling reason to pause. I would see more of a compelling case for bringing the rates up and then holding for a while until you get less uncertain about where the economy is going.” The release of weak China data on Wednesday likely contributed to the bearish pressures surrounding bitcoin and other risky assets. Bitcoin fell by almost 2% to $27,021 after Mester’s comments were published. The Fed has raised rates by 500 basis points to 5% since March 2022 to curb inflation. Mester’s support for another interest rate hike and the higher-for-longer stance comes after hotter-than-expected inflation data, validating the recent hawkish repricing of interest rate expectations in the U.S. Traders no longer expect the Fed to cut rates this year and have fully priced in a 25 basis point rate hike for June. Mester added that the debt ceiling deal removes a “big piece of uncertainty” from the U.S. economy. The Treasury’s issuance of bonds after the deal’s approval would remove dollar liquidity from the system, which could be bearish for risk assets in general.