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Anticipation builds in both the traditional financial as well as Bitcoin and crypto sectors as the Federal Reserve’s FOMC rate decision looms this Wednesday at 2:00 pm ET. Federal Reserve Chair Jerome Powell will address the public, shedding light on the decision, 30 minutes post-announcement.
Reviewing The Macro Economic Landscape
The recent months have witnessed a rekindling of inflation. Data reveals that July experienced a year-over-year inflation increase of +3.2%, with August climbing even higher to 3.7% YoY. This surge was underscored by August’s significant +0.6% month-over-month inflation growth, marking the year’s largest.
On the labor market front, there have been hints of a slowdown. An unsettling leap in unemployment figures, moving from 3.5% in July to 3.8% in August, solidifies this observation. This perspective finds alignment with the sentiment of various Fed officials who anticipate this trend of gentle deceleration to persist.
While the revived inflation is concerning for many, Fed officials have voiced the perspective that current monetary policies provide them ample breathing room to observe ensuing developments. Consequently, market participants predict no rate alterations in this FOMC cycle.
The CME FedWatch Tool, reflecting bond trader sentiments, showcases a 99% likelihood that the federal-funds rate target will hold steady at 5.25%-5.5%. If this pans out, it’ll mark the first time since rate hikes began in March 2022 that rates remain unchanged for two back-to-back sessions.
However, beyond the rate decision and Powell’s much-awaited speech, the release of the Fed’s new “dot plot” at 2:00 pm promises to be the most pivotal event. This visualization, which depicts projections for interest rates and economic growth, could potentially be the primary market mover of the entire event. The pressing question will be: What does the data suggest about the US’s economic health and when will we see the first interest rate cut?
Past data from the June session indicated that the median prediction among Fed officials was a year-end funds rate of 5.6%. This would suggest a potential rate hike on the horizon for later this year.
Bitcoin’s Stance Amidst Economic Speculations
Keith Alan, co-founder of Material Indicators, shed light on Bitcoin’s current state by suggesting the volatile environment around the FOMC’s rate decision. He noted, “The fun continues as we approach Wednesday’s FOMC rate hike decision,” and emphasized the fluctuating signals on the Bitcoin daily and weekly charts. Pointing out the potential influence of large traders, or “Killer Whales,” Alan remarked that Monday’s rally might have been a product of market manipulation rather than a shift in broader sentiment.
Meanwhile, Furkan Yildirim threw a spotlight on the potential repercussions of the rate decision on Bitcoin. He speculated that the FOMC could be a non-event for Bitcoin and crypto and highlighted an intriguing trend, stating, “Interestingly, hedge funds are now net long the US dollar for the first time since March.” He suggested that while the rate decision might pause, the general hawkish undertone could persist.
Drawing attention to the currency dynamics at play, Yildirim added, “The recent rise in the US dollar and the associated repositioning of hedge funds can be explained primarily by the weak euro after the ECB decision.” Therefore, on the smaller time frames, Bitcoin has not shown an inverse correlation with the rise of the US dollar. If the dollar index (DXY) continues its upward trend, Bitcoin could still continue to rise, driven by market-intrinsic dynamics.
Remarkably, Bitcoin has surged over 7% in the last 8 days. However, it is important to note that on higher time frames, Bitcoin is still showing a pattern of lower highs and is in a downtrend. Unless it surpasses the $28,000 mark, BTC price is still in a downtrend and needs to confirm a breakout.
Featured image from iStock, chart from TradingView.com