Policy Issues: The Federal Reserve is expected to raise interest rates in March and start tapering, while the U.S. House of Representatives is considering a hearing on "mining environmental issues."
According to the Federal Reserve meeting minutes, considering the possibility of higher-than-expected future inflation, there are plans to potentially begin raising interest rates as early as March this year and expected to start reducing the balance sheet thereafter; Additionally, sources mentioned that a congressional subcommittee is preparing to hold a hearing on environmental issues arising from cryptocurrency mining.
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Likelihood of Rate Hike in March Increases
The Federal Reserve (FED) released the meeting minutes of the Federal Open Market Committee (FOMC) held on December 14 last year on January 5, discussing the possibility of a rate hike in March and how to reduce the central bank's massive $8.67 trillion balance sheet.
Most participants noted that given the current economic outlook, labor market conditions, and inflation situation, it may be necessary to start raising rates earlier than expected. CIBC economist Katherine Judge believes that the Fed will begin to shrink its balance sheet in the second quarter.
Compared to the two-year delay in shrinking the balance sheet after the first rate hike in 2015, this time the action will be much faster. Officials at the meeting believe that the conservative decision in 2015 is not applicable this year, as the current economic outlook is stronger, inflation rates are higher, and the labor market is tighter.
Almost all Fed officials have raised their inflation expectations for this year, with the upside risks to inflation potentially even more severe than the impact of the COVID-19 pandemic. Additionally, some officials believe that the Omicron variant will not alter the economic recovery process.
Following the news of the rate hike, all four major U.S. stock indices declined by 1 to 3%, while the 10-year U.S. Treasury yield rebounded by nearly 4%, approaching last year's March high.
Bitcoin, on the other hand, dropped to the $43,000 level under the double blow of Kazakhstan's internet shutdown and the rate hike, with the hash rate of major mining pools also declining.
Internet has been down in Kazahstan for a few hours where roughly 18% if Bitcoin's hashrate is.
Looks like the impact on the hashrate is so far 12% drop just in the last few hours since internet went down. pic.twitter.com/FcTDsJ6R77
— Larry Cermak 🫡 (@lawmaster) January 5, 2022
Mining Environmental Issues
According to sources cited by The Block, the U.S. House Committee on Energy and Commerce is preparing a list of attendees for an oversight hearing to examine the energy consumption of Proof of Work (PoW) mining, particularly focusing on the Bitcoin network.
The exact attendees are yet to be determined, and the hearing is likely to take place at the end of January. An anonymous source participating in the pre-hearing discussion group revealed to The Block that, following the mining ban in China, many mining operations have moved to power plants in northern New York. While mining activities are thriving in states like Texas and Wyoming, committee members are particularly concerned about operations in New York.