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As the long-awaited meeting of the Federal Open Market Committee (FOMC) approaches, the financial world is buzzing with speculation about the potential implications for Bitcoin and cryptocurrencies. Tomorrow, Wednesday, July 26 at 2:00 pm ET, the FOMC will announce its interest rate decision. As usual, Federal Reserve Chairman Jerome Powell will meet with the media at 2:30 pm ET.
According to CME’s FedWatch tool, most of the market expects a 25 basis point (99.8%) gain. However, the real intrigue lies in what will happen after this move and whether it marks the end of the rate hike cycle.
After tomorrow’s decision, the market expects the Fed to keep the key interest rate high for a longer period of time. The first rate cut may not occur until March 2024, if not May.
98.9% probability of a 25 bps hike by the Fed.
Market expects the Fed to keep the key interest rate high for a longer period of time. A first rate cut could come in March ’24 at the earliest, if not in May. pic.twitter.com/C8wscv6BMd
— Jake Simmons (@realJakeSimmons) July 25, 2023
Consequences for Bitcoin and cryptocurrencies
For the past 16 months, the US Federal Reserve has been fighting inflation while raising interest rates to levels not seen in 20 years. But all signs point to a possible end of the tightening cycle. The market strongly expects a 0.25 bp increase. p. to the range from 5.25 to 5.5% will be the last.
Fed Target Rate Probability | Source: CME FedWatch tool.
Meanwhile, Bitcoin and the cryptocurrency experienced a period of relative immunity to macroeconomic events and rate hike speculation in the first seven months of the year. However, investors should be aware that such conditions cannot last indefinitely.
On Monday, the price of bitcoin returned to the $29,000 support level. By all accounts, market participants were cautious ahead of the July FOMC meeting, realizing that the FOMC meeting could have a profound impact.
In June, Fed Chairman Jerome Powell hinted at the possibility of further rate hikes this year, with some committee members advocating two more hikes. Now the market is looking forward to the results of this meeting to determine the future policy of the central bank.
However, factors such as declining US inflation and a weaker labor market are adding to market expectations. Previously soaring inflation, which led to a tightening cycle, showed signs of declining. CPI data for June (YoY) showed a decline in inflation to 3.0% from 4.0%. The base rate fell from 5.3% in May to 4.8% in June. Both declines were stronger than previously expected. It is noteworthy that the base rate is now trading below the level of the US federal funds rate, which has been quite rare in the last 20 years.
The continued strengthening of the US labor market has long been the biggest headache for the Federal Reserve due to the imbalance between supply and demand. At the peak of this imbalance, there were two vacancies for every available worker, pushing up wages accordingly. As supply and demand approach equilibrium, the number of jobs created declines. In addition, there are even early signs of lower consumer spending.
So what does all this mean for investors in bitcoin and cryptocurrencies? As always, it is important to approach the market in a balanced way. While BTC and cryptocurrencies have shown resilience in the face of traditional economic events, they are not completely insulated from larger macroeconomic trends.
Investors should keep a close eye on the Fed’s interest rate decision and subsequent statements by Jerome Powell. Any signals of a future rate hike cycle could have repercussions for both the traditional markets and the Bitcoin and crypto markets, triggering further selloffs.
At the time of publication, the market continued to show indecision. BTC was trading at $29,200.
BTC price hovering above $29k, 4-hour chart | Source: BTCUSD on TradingView.com.