Crypto market participants await the outcome of the Federal Open Market Committee (FOMC) meeting scheduled today, June 14.
The Federal Reserve has been conducting a two-day policy meeting since June 13 to determine its benchmark lending rate amidst cooling inflation in the world’s largest economy.
The FOMC meeting has garnered considerable attention due to the Federal Reserve’s aggressive rate hikes over the past year. It has raised interest rates 10 times since March 2022 in an attempt to counter inflation, which remains well above its long-term target of 2%.
Recent data shows a slowdown in consumer price inflation, with the U.S. Consumer Price Index (CPI) recording a mere 0.1% increase in May, the smallest in over two years.
However, Fed Chairman Jerome Powell is widely expected to pause this aggressive rate hike cycle, maintaining federal fund rates in the 5.00%-5.25% range. This move is seen by some observers as a “hawkish pause,” leaving room for potential future increases.
Analysts suggest that such a move could have a significant impact on the crypto market.
“For the FOMC meeting, we think the risk is that they do a ‘hawkish skip’ – implying they pause at this meeting, but raise their median dot [interest rate] projection to show a continued hiking bias,” says QCP Capital’s market insights team.
Also, David Brickell, director of institutional sales at crypto liquidity network Paradigm, suggests a cautious optimism.
“The consensus is for the hawkish skip, so the bar might be quite high for Jerome Powell to out-hawk the market,” says Brickell.
He anticipates a potential recovery in risk assets but doesn’t foresee a significant market move.
Meanwhile, Bitcoin (BTC) traders adopt a defensive stance ahead of the announcement. The steep rate-increase cycle by the Fed last year destabilized risk assets, including cryptocurrencies.
The futures market, on the other hand, signals an interest rate hike later this year. At press time, Fed funds futures showed just over a 50% probability of the Fed raising rates by another 25 basis points in July.
The CME FedWatch tool indicates a 95.3% probability that there will be no change at the meeting. This pause would give the central bank more time to observe the effects of its fight against inflation.
Happy hawkish pause day!
The market gives a 96% probability that the Fed pause today after hiking rates at every meeting since March 2022.
Major banks agree.
Most important, will be the new ‘dot plot’ —> any revisions higher would spook equities lower and the dollar higher. pic.twitter.com/M8UQkmXoZG
— tedtalksmacro (@tedtalksmacro) June 14, 2023
Bitcoin and other cryptocurrencies have been a popular choice for traders looking to hedge against inflation, and the rate hikes have caused some traders to shift their investments into digital assets.
