- The FOMC is unlikely to hike rates another 75 basis points, but futures markets are still divided
- Employees also again lowered their growth forecasts for the second half of 2022 and 2023 – despite a rebound in gross domestic product growth in the second quarter
According to minutes released on Wednesday, the Fed is likely to hike interest rates again as preliminary efforts by the US regulator have yet to stem inflation.
The Federal Reserve agreed at a meeting in July to raise interest rates by 0.5% in September, minutes say. Cryptocurrency traders have been closely watching the Fed’s moves this year amid the market turmoil.
“The forecast for US economic activity prepared by the staff for the July FOMC meeting was noticeably weaker than the June forecast, reflecting reduced momentum in the economy and current and prospective financial conditions, which were expected to underpin growth less support of aggregate demand,” 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 hike next month.
Meanwhile, growth forecasts for the second half of 2022 and 2023 have been lowered, despite a rebound in GDP growth in the second quarter.
At the committee’s July 26-27 monetary policy meeting, central bankers decided to raise interest rates again by 75 basis points, an increase that Fed Chair Powell had previously described as “unusually large”.
“Today’s 75 basis point rise is clearly unusually large and I don’t expect moves of that magnitude to be common,” Powell said at the time.
However, Wednesday’s minutes suggest the show’s officials could be biased for another 75 basis point hike at the Sept. 20-21 meeting.
A cooler-than-expected July CPI report sent crypto and stock markets rallying again, but the Fed’s preferred measure of inflation, the Personal Consumption Expenditure Index, isn’t due out until later this month.
“Most market participants seemed to view a slowdown in inflation and slower but still positive economic growth as the most likely scenario,” the minutes read. “However, given the potential shocks from abroad and the ongoing surprises on the upside on the upside, investors seemed increasingly aware of downside risks to the economy.”
Stocks fell slightly on the news. The S&P 500 lost 0.6% and the Nasdaq slipped 1.1% late in the day – while Bitcoin fell 1%.
“Technical analysis tells us that Bitcoin faces a critical test in the coming days as the 200-week moving average sits just below the current price of $23,700, at around $23,000 – if it fails to hold that level, suggests there is more downside in the coming weeks and the market reversal may be delayed,” said Marcus Sotiriou, analyst at GlobalBlock.
Corporate earnings will also play a role in future market movements, Tom Essaye, founder of Sevens Report Research, wrote in a note on Wednesday.
“The market will want to see more good earnings and forecasts from the remaining big retailers as quarterly earnings are released today as well as a not as hawkish as feared set of Fed minutes due out this afternoon when this latest leg is higher in stocks will continue,” Essaye wrote. “Otherwise, we could be primed for a pullback into the back half of the week as stocks are short-term overbought without new meaningfully positive catalysts.”
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