The fight against inflation by the U.S. Federal Reserve

The U.S. Federal Reserve's campaign against inflation might not be over until you've lost money on bitcoin (BTC).

The reason for this goes back to how central banks work. The Fed does what it does with monetary policy, which right now is to raise interest rates. This has an effect on the economy by, among other things, changing how much key assets cost, or what central bankers call "financial conditions."

Fed policymakers have been optimistic about markets like stocks for most of this year. They have been giving traders "forward guidance" about upcoming changes to monetary policy. But it seems like that was a long time ago. In July, Jerome Powell, who is in charge of the Fed, said that central bankers would stop giving "forward guidance."

In a note, Brian Overby, senior market strategist at Ally, said, "It's clear that the Fed wants to see tighter financial conditions, which means lower stock prices."

And that probably applies to crypto as well, since the prices of crypto have been strongly linked to the prices of stocks. That is probably bad news for crypto investors, who have already lost a lot of money.

According to data from CoinDesk, Bitcoin is already down more than 57% for the year so far. This is part of a larger trend of selling off crypto assets, which is caused by industry bankruptcies and a struggling global economy.

The U.S. central bank has two goals: to keep prices stable and to get as many people working as possible. Prices aren't stable right now, and inflation is well above the Fed's goal of 2%. In the meantime, the unemployment rate is still low, and employers are adding more than 300,000 jobs each month. That's good news for people looking for work, but it could make inflation worse, putting more pressure on the Fed to take even stronger action. That could be bad for markets like stocks and cryptocurrency.

Jim Bianco, president of Bianco Research, said, "The Fed wants to create a reverse wealth effect to get people with assets to rethink some of their buying habits and maybe slow demand."

He also said, "It's a risky game." "You want the market to go down, but you have to be careful when that starts to happen. If everyone runs away because they don't want to be the market's enemy, you could turn it into a rout. "

Even though the U.S. GDP has shrunk for two quarters in a row, the economy seems to be in good enough shape to handle more aggressive rate hikes. But if there are more signs of weakness, the Fed's resolve will be put to the test, and policymakers will have to decide how much pain they want to cause in the markets.

So far, "it's possible that [the central bankers] will give in when they see really bad employment numbers," Bianco said, but so far they haven't. "I don't think they will, but I see where you're coming from."