Next week may bring challenges for bitcoin as seven central banks encounter an inflation assessment.

Next week, seven prominent central banks, including the Federal Reserve, will announce their rate decisions at a time when surging oil prices due to conflict are raising new worries about global inflation.

Central banks globally will be in the spotlight next week. (Subhash Nusetti/Unsplash)

Key points:

• Next week, seven significant central banks, including the Federal Reserve, will announce rate decisions amid fresh inflation worries spurred by oil price surges due to conflict.
• Market participants are reevaluating predictions for rate reductions as escalating energy prices pose a risk of maintaining high inflation, leading to concerns that policymakers may adopt a more aggressive approach.
• Such hawkish indications could lead to increased volatility and downward pressure on Bitcoin and other risk assets.

Article Overview

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The upcoming week may be crucial for markets, including Bitcoin, as seven key central banks, notably the powerful Federal Reserve, reveal rate decisions amidst rising oil prices from conflict that threaten to reignite inflation in the worldwide economy.

The busy economic schedule for the week features the Reserve Bank of Australia (RBA) rate decision on March 17, followed by the Bank of Canada (BOC) and the Fed on March 18, concluding with the Bank of Japan (BOJ), Swiss National Bank (SNB), and European Central Bank (ECB) on March 19.

Recently, markets anticipated that most major central banks, led by the Fed, would progressively lower interest rates (or refrain from tightening) this year. The swift rise of artificial intelligence as a disinflationary factor—with the potential to disrupt the labor market—had solidified this preference for lower borrowing costs. This outlook had been supportive of risk assets, including Bitcoin.

Nevertheless, the conflict that commenced on February 28 with coordinated strikes by the U.S. and Israel on Iran, which has since involved extensive retaliatory actions and disrupted energy deliveries throughout the Middle East, has complicated that perspective.

Increasing oil prices have rekindled inflation fears, prompting traders to reevaluate interest rate anticipations. There are concerns that central banks may react to the changing inflationary macroeconomic landscape by raising borrowing costs.

Consequently, hawkish signals next week might incite downward volatility in risk assets, including Bitcoin. This scenario appears plausible, as policymakers—remembering their 2021–22 error when they deemed inflation as transitory and were proven incorrect—may be particularly quick to address rising price pressures this time.

If they opt for a neutral or data-dependent stance while monitoring the situation or minimize inflation concerns, risk assets could experience a rally. This potential cannot be dismissed either.

"As with all supply shocks, the initial Fed reaction to an oil price increase is to observe and evaluate the impact," economist and Fed observer Ethan Harris noted in a LinkedIn post.

"There are two reasons for this caution. First, oil shocks simultaneously depress growth and elevate inflation. Before taking action, the Fed wants to ascertain which issue is more pressing. Second, most such shocks are temporary. The Fed aims to avoid altering rates, only to reverse that decision weeks later," he clarified.

Historically, only the Fed—and possibly the BOJ—have significantly influenced Bitcoin prices. With oil prices already affecting all aspects of Japanese society, the BOJ’s decision next Friday could be especially critical for both local markets and Bitcoin.