Cryptocurrencies fell and stocks traded sideways on Friday after contradictory statements from the Federal Reserve left traders confused about what comes next.
New York Federal Reserve President John Williams presented a different narrative on Friday than the one held by investors on Wednesday. Williams rejected the idea that interest rate cuts are imminent, an expectation that has followed the market since Fed Chair Jerome Powell's news conference on Wednesday.
“We're not really talking about rate cuts right now,” he said during a CNBC interview Friday morning. “It’s just premature to even think about it.”
Read more: Bitcoin has recovered. But where does the price go next?
The comments appear to contradict the Fed's earlier statement that peak interest rates have likely been reached, leaving markets to expect a round of rate cuts in 2024.
The S&P 500 traded sideways midway through Friday's session, while the Nasdaq Composite posted modest gains of 0.4%.
The Dow Jones Industrial Average, which rose to a record high after the Fed's Federal Open Markets Committee meeting, also remained unchanged.
As stocks digested the central bank's mixed statements, the dollar recovered slightly after a sharp decline on Wednesday. However, if interest rate cuts occur in the first quarter of 2024, analysts say the dollar will have to correct again.
“If markets interpret the Fed’s statements this week correctly and U.S. interest rates actually start to fall over the next few months, money will likely flow out of the dollar and into other currencies,” said Noelle Acheson, author of “Crypto is Macro Now.” . Newsletter said. “We are already starting to see this – in the 24 hours following Wednesday’s FOMC statement, the DXY index fell about 2%.”
Bitcoin (BTC) and Ether (ETH) fell about 3% each Friday afternoon, extending the correction that began this week. According to analysts, this was an expected development.
Both cryptos are down around 5% since Monday, but are still on track to end the year well in the green, with Bitcoin and Ether currently up 151% and 87% year-to-date, respectively.
“Crypto market sentiment had begun to turn overly optimistic, triggered by a flash crash…earlier this week,” analysts at Cycles Edge wrote in a note on Friday. “The Crypto Fear and Greed Index shows increased levels of greed. While this is not a timing tool per se, it does suggest that the current run will require some cooling down soon.”
Looking ahead, traders will be keeping an eye on next week's core Personal Consumption Expenditure Index release.
With the Fed choosing to cut its core PCE to 2.4% for 2024, that's still above the central bank's 2% target but a significant decline from the 3% increase reported last month. 46% compared to the previous year.
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