Countdown to the FOMC meeting: what traders should prepare for
Date: 2023-07-27 Author: Karina Ziganova Categories: BLOCKCHAIN
As the long-awaited meeting of the Federal Open Market Committee (FOMC) approaches, the financial world is seething with speculation about the possible consequences of raising the key rate for bitcoin (BTC) and other cryptocurrencies.
Tonight, the FOMC will announce the interest rate decision, and Federal Reserve Chairman Jerome Powell will speak to the media.
According to the CME FedWatch tool, the majority of market participants (99.8%) expect a rate hike of 25 basis points. However, the real intrigue is what will happen after this move and whether it will mean the end of the rate-hike cycle.
The Fed chairman is in favor of a further rate hike
Over the past 16 months, the Fed has been actively fighting inflation and raising interest rates to the highest level in the last 20 years. However, more and more signs point to the possible end of the austerity cycle. Traders hope that today's rate hike of 0.25 bps in the range of 5.25-5.5% will be the last.
Factors such as declining inflation in the U.S. and a weak labor market are reinforcing market expectations. Data on the consumer price index (y/y) for June showed that inflation fell to 3.0% from 4.0%. The core rate sank from 5.3% in May to 4.8% in June. It is noteworthy that the key rate is now below the level of the US federal funds rate, which has been quite rare over the past 20 years.
The protracted tightening of the labor market, caused by the imbalance between supply and demand, has become the biggest headache for the Federal Reserve. At the peak of the imbalance, there were two vacancies for every employee available, which caused wages to rise. As supply and demand come into equilibrium, the number of jobs created decreases. In addition, there were the first signs of a slowdown in consumer spending.
However, traders' expectations may not coincide with reality. In June, Fed Chair Jerome Powell signaled the possibility of another rate hike this year, with some committee members advocating two hikes. Thus, today's FOMC meeting will help determine the future position of the central bank.
How the FOMC decision will affect the crypto market
Since the beginning of 2023, bitcoin and other cryptocurrencies have shown relative resilience in the face of major macroeconomic events. However, this time, market participants preferred to be cautious, realizing that the July FOMC meeting could have a more serious impact on digital asset quotes.
In addition, the bullish momentum that led BTC to a new yearly high has all but faded, with the price of the major cryptocurrency briefly dipping below the $29,000 mark on Monday, signaling a potential spike in volatility amid the Committee's decision.
This means that crypto traders should keep a close eye on the Interest Rate Committee's decision and Jerome Powell's subsequent statements. Any signal of a future rate-hike cycle could have an impact on both the traditional and cryptocurrency markets, triggering a further sell-off.
