Markets react to FOMC meeting minutes
Important takeaways
- The FOMC minutes from the meeting in July have been published.
- Members agreed on the necessity of keeping interest rates higher as a means of combating inflation.
- The markets were predictably cool before the news and haven’t fared much better since.
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Minutes from the Federal Open Market Committee’s July meeting were published today and the markets have responded coolly.
Higher prices in the future
The US central bank may raise interest rates once again, according to the minutes from last month’s meeting of the Federal Open Market Committee (FOMC), published today.
In July, a 0.75 percentage point increase pushed interest rates to 2.25% to 2.5%. The FOMC now plans to double the rate of balance sheet contraction in September.
Members suggested that the pace of interest rate increases and balance sheet reduction would be dependent on and responsive to market conditions. They further suggested that it may be necessary to adjust the pace of tightening policies to assess their real impact on inflation. The protocol read:
Members agreed that, in assessing the appropriate stance of monetary policy, they will continue to monitor the implications of incoming information for the economic outlook and that they will be prepared to adjust the stance of monetary policy as necessary in the event that risks emerge that could prevent the achievement of the committee’s objectives.”
Markets were predictably chilly in the hours leading up to the release of the minutes; major cryptocurrencies and stock indices showed steady downtrends in the hours leading up to the announcement. However, the stock and crypto markets seem to have opposite responses to the news in the hours since the protocol was released. Both the Nasdaq and the Dow Jones Industrial Average enjoyed brief gains immediately after the release – from 12,935 to 13,053 and from 33,988 to 34,159 respectively in the first hour. However, both were short-lived and are now trading at pre-announcement levels.
Cryptocurrencies, on the other hand, took an immediate but modest hit. Bitcoin and Ethereum both continued mild declines in the wake of the announcement. They suffered 2.5% and 2% losses respectively on the day.
The Federal Open Market Committee is the policy arm of the Federal Reserve and is tasked with regulating monetary policy. Throughout the year, it has repeatedly raised the federal funds rate from the Covid-19 era’s near-zero rate to curb inflation.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH and other cryptocurrencies.
