Crypto, stock markets fall as Fed signals more interest rate hikes to come

The Fed is likely set to raise interest rates again, given that the US regulator’s preliminary efforts have yet to stem inflation, according to the minutes released on Wednesday.

The Federal Reserve agreed at a meeting in July that interest rates should be increased by 0.5% in September, the minutes say. Cryptocurrency traders have been watching the Fed’s moves closely this year amid market turbulence.

“The estimate of U.S. economic activity prepared by the staff for the July FOMC meeting was noticeably weaker than the June forecast, reflecting the economy’s reduced momentum and current and future financial conditions that were expected to provide less support for aggregate demand growth,” the minutes said.

The futures markets are now pricing in a 53% chance of a 50 basis point increase and a 48% chance of a 75 basis point rise next month.

Growth forecasts for the second half of 2022 and 2023 have meanwhile been lowered – despite a pick-up in gross domestic product growth in the second quarter.

At the committee’s political meeting on 26-27 In July, central bankers chose to raise interest rates by 75 basis points again, an increase Fed chairman Powell previously called “unusually large”.

“Obviously, today’s increase of 75 basis points is unusually large, and I do not expect moves of this magnitude to be common,” Powell said at the time.

However, Wednesday’s minutes show that officials can lean towards a further 75 basis points at the meeting on 20-21. September.

A cooler-than-expected July CPI report sent crypto and stock markets rallying, but the Fed’s preferred measure of inflation, the Personal Consumption Expenditure Price Index, won’t be released until later this month.

“Most market participants appeared to see a moderation in inflation and slower, but still positive, economic growth going forward as the most likely scenario,” the minutes said. “However, investors appeared to be increasingly mindful of downside risks to the economy in light of the potential for shocks from abroad and the continued upside surprises to inflation.”

Shares fell slightly on the news. The S&P 500 lost 0.6%, and the Nasdaq fell 1.1% by the end of the trading day – while bitcoin fell 1%.

“Technical analysis tells us that bitcoin faces a critical test in the coming days, as the 200 weekly moving average sits just below the current price of $23,700, at around $23,000 – failure to hold this level would suggest that are further downsides to overcome in the following weeks and the market’s reversal may be delayed, says Marcus Sotiriou, analyst at GlobalBlock.

The company’s earnings are going to play a role in future market moves as well, Tom Essaye, founder of Sevens Report Research, wrote in a note on Wednesday.

“The market will want to see more good earnings and guidance from the remaining major retailers due to the reporting of quarterly earnings today, as well as a set of less-hawkish-as-feared Fed minutes released this afternoon, if this latest leg turns higher in stocks is going to continue,” Essaye wrote. “Otherwise, we may be prepared for a pullback in the back half of the week as stocks have been overbought in the short term without any new meaningful positive catalysts.”

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