Crypto, Stock Markets Slide as Fed Signals More Rate Hikes to Come

key takeaways

The FOMC is not likely to raise rates another 75 basis points, but futures markets are still split
Staff also again lowered their growth forecasts for the second half of 2022 and 2023 — despite a rebound in gross domestic product growth during the second quarter

The Fed is likely set to raise interest rates again, considering the US regulatory body’s preliminary efforts have yet to stem inflation, according to minutes released Wednesday.

The Federal Reserve agreed in a July meeting that rates are due for a 0.5% hike in September, the minutes said. Cryptocurrency traders have been closely monitoring the Fed’s moves this year amid market turbulence.

“The projection for U.S. economic activity prepared by the staff for the July FOMC meeting was noticeably weaker than the June forecast, reflecting the economy’s reduced momentum and current and prospective financial conditions that were expected to provide less support to aggregate demand growth,” the minutes said.

Futures markets are now pricing in a 53% chance of a 50 basis point hike and a 48% chance of a 75 basis point rise next month.

Growth forecasts for the second half of 2022 and 2023, meanwhile, have been lowered — despite a rebound in gross domestic product growth during the second quarter.

At the committee’s July 26-27 policy meeting, central bankers opted to raise interest rates by 75 basis points again, a hike Fed Chair Powell previously called “unusually large.”

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said at the time.

Wednesday’s minutes, however, show officials may be leaning toward another 75 basis point increase at the Sept. 20-21 meeting.

A cooler-than-expected CPI report from July had crypto and equities markets rebounding, but the Fed’s preferred measurement of inflation, the Personal Consumption Expenditures price index, will not be released until later this month.

“Most market participants appeared to view a moderation of inflation and slower, but still positive, economic growth ahead as the most likely scenario,” the minutes said. “However, investors appeared to be increasingly attentive to downside risks to the economy in light of the potential for shocks from abroad and the continued upside surprises to inflation.”

Equities moved down slightly on the news. The S&P 500 lost 0.6%, and the Nasdaq slid 1.1% toward the end of the trading day — while bitcoin dipped 1%.

“Technical analysis tells us that bitcoin faces a critical test over the coming days, as the 200 weekly moving average sits just below the current price of $23,700, at around $23,000 – failing to hold this level, will suggest there is further downside to come over the following weeks and the market’s reversal may be delayed,” said Marcus Sotiriou, an analyst at GlobalBlock.

Corporate earnings are going to play a role in future market moves, too, Tom Essaye, founder of Sevens Report Research, wrote in a note Wednesday.

“The market will want to see more good earnings and guidance out of the remaining major retailers due to report quarterly results today as well as a not-as-hawkish-as-feared set of Fed minutes released this afternoon, if this latest leg higher in stocks is going to continue,” Essaye wrote. “Otherwise, we could be set up for a pullback into the back half of the week as stocks have become near-term overbought without any new meaningfully positive catalysts.”

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