Fed Officials Expect Slower Growth, Imminent Rate Rises

Central bankers lowered their growth forecasts for the second half of 2022 and 2023, despite a rebound in GDP during the second quarter of 2022

article-image

Blockworks exclusive art by axel rangel

share

key takeaways

  • FOMC officials are not ruling out another 75 basis point rate hike in July
  • Equities are affected more by corporate earnings than recession fears, one analyst said

Federal Reserve officials agreed in June that interest rates may need to increase at a faster pace to combat inflation, likely in either a 50 or 75 basis point hike in July, according to minutes released Wednesday. 

“Many participants judged that a significant risk now facing the committee was that elevated inflation could become entrenched if the public began to question the resolve of the committee to adjust the stance of policy as warranted,” the minutes said. 

Futures markets are now pricing in a 90% chance of a 75 basis point hike and a 10% chance of a 50 basis point hike this month.

“[This is] little changed after the release of today’s minutes,” Jack Farley, macro analyst and host of Blockworks’ Forward Guidance podcast, said. “Two things might increase the likelihood of a more moderate 50 basis point hike: The Atlanta Fed’s GDPNow Estimate of -2.1% for the second quarter (seasonally adjusted annualized rate), and the recent fall in commodity prices, which might moderate June’s inflation reading.”

Staff also lowered their growth forecasts for the second half of 2022 and 2023 — despite a rebound in gross domestic product growth during the second quarter. 

At the committee’s June 14-15 policy meeting, central bankers opted to raise interest rates by 75 basis points, a hike Fed Chair Powell 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 during a press conference June 15.

Wednesday’s minutes, however, show officials may be leaning toward another 75 basis point increase at the July 26-27 meeting. 

“After the release of the higher-than-expected inflation data, policy-sensitive rates pointed instead to a considerable probability of 75 basis point moves at both the June and July meetings,” the minutes said. 

Equities were largely unchanged on the news. The S&P 500 gained 0.1% and Nasdaq slid 0.4% toward the end of the trading day — while bitcoin held essentially flat, gaining 0.4%. Corporate earnings are going to have a greater impact on stocks than rate hikes, according to Nicholas Colas, co-founder of Datatrek Research.

“Stock prices don’t care about recessions; they care about the damaging effect recessions have on corporate earnings,” Colas said. “We think it is very safe to assume that large US companies such as those in the S&P 500 will, in aggregate, generate profits regardless of economic conditions over the next 12 – 18 months.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Flashnote Template Presentation (2).jpg

Research

With the recent election, it’s clear that there will be a meaningful shift in crypto regulations and legislation. Trump is likely as pro-crypto as a president can be. He launched (multiple) of his own NFT collections and is launching an Aave wrapper called World Liberty Fi. He has also spoken out and mentioned that he wants to make the United States "the crypto capital of the planet" and transform it into the "Bitcoin superpower of the world". He proposed creating a strategic national Bitcoin stockpile alongside support from Senator Cynthia Lummis, promising to retain 100% of all Bitcoin held by the U.S. government. More importantly, we’re likely to see deregulation across the board in a lot of industries, with crypto being one of them - as Trump has committed to keeping the crypto market largely unregulated. Crypto, DeFi in particular, has historically been knee-capped by overreaching and hostile governmental agencies and regulation by enforcement, as evidenced by the plethora of Wells notices and lawsuits over the past few years. With Donald Trump winning the presidency, Republicans taking control of the Senate, and being on the verge of securing the House, we think it’s likely that crypto realizes positive regulatory clarity. Below, you can find our analysts’ takes:

article-image

Solana is the crowd favorite to potentially flip Ethereum somewhere down the line, and it tends to feel realistic at times

article-image

Of course, a lot has happened since the 600+ survey respondents shared their thoughts between Aug. 15 and Oct. 1

article-image

AI’s future shouldn’t be decided by a handful of tech giants

article-image

A look at software wallet Exodus may show how an SEC shakeup could have a real impact on industry companies

article-image

Co-chairing Trump’s transition team to help fill administration positions is Cantor Fitzgerald CEO Howard Lutnick

article-image

Reflect is a delta-neutral currency protocol that lets tokens accrue yield without touching the banking system