Fed Preparing Another Large Interest Rate Hike as Bitcoin Tumbles Back to $21,000

Later today, the Federal Open Market Committee (FOMC), a committee consisting of twelve Federal Reserve (Fed) officials, will meet for the fifth time this year to discuss monetary policy goals. There is a growing belief among investors that the committee will authorize another federal funds rate hike in the 75 BPS points range.

Key takeaways:

• Interest rate hikes are the key tool in the Fed’s arsenal to manage the growing inflation stemming from economic uncertainty, Covid-related economic stimulus programs, and the rising price of food, energy, and other essentials.
• Last month, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased by 9.1% year-over-year (YoY), the largest yearly increase in the CPI since the 1980s.
• In mid-June, the Fed announced the largest interest rate hike since 1994 to battle the 40-year high inflation, thus firmly putting an end to the nearly two-year-long phase of near-zero interest rates between 2020 and 2022. The effective federal funds rate is estimated to increase from its current value of 1.75% to 2.50% later today, according to a Reuters report.
• The official statement by the FOMC, which is extremely likely to include an interest rate hike, will be released later today, at 6:00 PM GMT.
• This year’s interest rate hikes haven’t managed to reign in the increasing inflation as of yet. However, they could have played a role in the broader economic slowdown. The International Monetary Fund (IMF) July report, titled Gloomy and More Uncertain, forecasts the global GDP growth to decline to 3.2% in 2022, down from 6.1% last year.
• On Thursday, the United States is slated to release a GDP report for Q2 2022. Another negative GDP quarter could compel the Biden administration to announce a recession. However, the administration has apparently gotten ahead of the story, pointing to the strong U.S. job market as the reason why the world’s largest economy is not in a recession.
• Lark Davis, a prominent cryptocurrency investor and educator with over a million Twitter followers, warned earlier this week that the culmination of several macroeconomic factors this week could lead to high volatility in the markets.
• Bitcoin has erased much of its gains accumulated in the recent rebound in the last seven days. The world’s largest crypto is down 9% in the past week, currently trading in the $21,000 range.