- The Federal Reserve (FED) will announce its interest rate decision on Wednesday, and what matters is not whether it will increase the benchmark borrowing cost by 25 basis points (bps).
- It is expected that the Fed will raise interest rates to the range of 5.25%-5.5%, and Chairman Jerome Powell will hold a press conference half an hour after the announcement at 18:00 UTC.
- Since the June meeting, stocks have risen and investors have lowered their expectations for further tightening, observing ongoing labor market resilience and declining inflation.
The important thing about the Federal Reserve’s interest rate decision on Wednesday, July 26th, is not whether the rate will be increased, but whether this increase will be the last.
FED to Announce Interest Rate Decision on July 26th
The Federal Reserve (FED) will announce its interest rate decision on Wednesday, and what matters is not whether it will increase the benchmark borrowing cost by 25 basis points (bps), but whether this increase will mark the end of a tightening cycle that began 16 months ago and was partially responsible for last year’s cryptocurrency market crash.
It is expected that the Fed will raise interest rates to the range of 5.25%-5.5%, and Chairman Jerome Powell will hold a press conference half an hour after the announcement at 18:00 UTC. A recent survey shows that the majority of 106 economists believe that the increase will be the last for a while. Fed fund futures indicate that traders expect the Fed to keep interest rates steady until early next year. However, some cryptocurrency observers disagree with this.
Matt Kunke, a research analyst at GSR, said:
“Looking at the June Summary of Economic Projections (SEP) by the Fed, the median forecast among Fed officials indicated that there would be two additional 25 basis point increases by the end of the year, but the markets did not fully embrace this view and continue to imply that an increase is more likely (~65%) than not (~27%).”
Kunke added, “Our year-end base scenario continues to align with SEP forecasts and predicts another increase this year due to the continued persistence of inflation measured by the Fed’s preferred inflation gauge, Core PCE.”
Bank of America expects the Fed to raise rates in September:
“We continue to expect a second 25bp increase in September, but the steps after July will continue to depend largely on data, both in terms of timing and whether they materialize.”
Since the June meeting, stocks have risen and investors have lowered their expectations for further tightening, observing ongoing labor market resilience and declining inflation, and beginning to believe that the economy is safer for a soft landing.
This means that suggestions of rate hikes after July could lead investors to withdraw from some risks, putting downward pressure on risk assets, including cryptocurrencies. Dick Lo, founder of TDX Strategies, said:
“The market expects a 25 basis point rate hike, but we will watch to see if a hawkish tone in the FOMC statement and subsequent Powell press conference, which leaves the door open for more rate hikes this year, could further increase downward pressure.”
Correlations Can Change Quickly
The Fed’s statements and Wall Street sentiment may not be as important for Bitcoin: the cryptocurrency’s correlation with stocks has weakened in the past 90 days. However, correlations are lagging indicators and can change quickly.
In addition, Bitcoin’s bullish momentum, which strengthened with BlackRock’s ETF filing on June 15th, has weakened recently, and companies like JPMorgan state that any approval would not be a major change for the cryptocurrency market. On Monday, the cryptocurrency fell by more than 3% and signaled a potential volatility explosion by breaking out of the Bollinger Bands.
Therefore, cryptocurrency traders may need to pay more attention to what the Fed says and how traditional markets react. David Lawant, Head of Research at FalconX, stated:
“I’m looking at how the Fed will set the tone for the meetings in September and beyond. We are at an interesting juncture as inflation recedes, but positive base effects will be less pronounced going forward. Additionally, oil prices rebounded about 10% in recent weeks.”
Lawant said, “I expect the cryptocurrency market to move in parallel with risk assets in general.” Tim Frost, CEO of Yield App, warned that it is too early to celebrate a cryptocurrency bull market.
