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Equities traded relatively flat Monday while crypto assets posted losses ahead of the Federal Reserve’s interest rate decision this week. Analysts largely agree the central bank will opt for a 25 basis point increase, and the market is betting on this being the last hike.
Bitcoin (BTC), which just defeated its previous record for daily transactions, was down close to 5% Monday afternoon in New York, while ether (ETH) posted around a 4% loss. Both the S&P 500 and Nasdaq Composite indexes showed less than a 0.2% change.
“Wednesday will almost certainly see the FOMC raise Fed funds by 0.25 percentage points, to 5.00 – 5.25 percent,” Nicolas Colas, founder of DataTrek Research, said.
The Fed’s rate decision is slated to drop in its post-meeting statement Wednesday at 2 pm ET, but markets will be waiting for Fed Chair Jerome Powell’s press conference for clues on future moves.
“If this week really is the end of the current rate hiking cycle, one would expect Chair Powell to make some mention of that fact at the post-meeting press conference,” Colas said.
“That is what markets are discounting, and they will want to hear confirmation of that fact. We know Powell watches Fed Funds Futures closely, so he has a clear choice to make in terms of how he frames his thoughts about the need for further rate hikes,” he added.
CME data shows that futures markets have a high probability of a 25 basis point hike, with an 89% certainty. However, there is less certainty about future actions. Analysts have differing views, with some suggesting a pause in hikes, while others predicting potential rate cuts.
“We agree with the market pricing a 90% chance of a 25 bp hike at the 3 May FOMC, but we disagree with the 60 basis points of rate cuts for the rest of 2023,” Dalvir Mandara, quantitative researcher at MacroHive, said in a note Monday.
As for bitcoin, Mandara said for now prices remain in the “corrective zone.” The largest crypto was trading around $27,800 at time of publication. If traders don’t like what Powell has to say this week, a decline below the $25,400 weekly support level would suggest a further low is on the horizon.
“It’s hard to tell which correction phase will play out at this stage,” he added.