cryptonews.com
The US Federal Reserve (Fed) has hiked interest rates by 75-basis points, to the interval 2.25 to 2.5%, in line with what most analysts expected. (This is a developing story and is being constantly updated.)
“Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed wrote in its announcement of the rate hike.
Analysts had widely expected the Fed to raise rates by 75-basis points, the same as during the previous Fed meeting in June. The same was also largely expected by market players, with the derivatives exchange CME’s FedWatch Tool ahead of the announcement indicating a 76% probability that the Fed would announce another 75-point hike.
Federal Funds rate ahead of Wednesday’s hike:
Still, some, including a chief economist at investment bank JPMorgan Chase, have floated the idea that the Fed could hike rates by a full percentage point, the largest rate increase in modern Fed history. The argument given for that is that it would be helpful in taming inflation, which last month reached 9.1% annually in the US.
And although inflation is sky-high, economic growth in the US is cooling, putting the Fed in a difficult situation as it raises interest rates. According to a survey of economists by the Wall Street Journal, the chance of a recession in the US in the next 12 months is now 49%.
The latest survey results mean economists have turned markedly more bearish on the economy in recent months. In June, 44% of the surveyed economists said a recession is likely in the next 12 months, while only 18% said the same in January.
Judging from a commonly accepted definition of a recession (two quarters of negative GDP growth in a row), the US could already be in one, although we will have to wait until quarterly GDP numbers are released on Thursday to know for sure.
Commenting before today’s announcement, Marcus Sotiriou, an analyst at crypto broker GlobalBlock, attributed the selling seen in the crypto market on Monday and Tuesday this week to fear of what the Fed might do.
“Selling in anticipation of this event has been typical throughout this bear market, as many market participants choose not to buy when there is uncertainty on what course of action the Federal Reserve plans to take,” Sotiriou said in an emailed commentary.
He added that we “could see” a rally in the crypto market if the Fed hikes rates in line with expectations, as bitcoin in particular has tended to reverse course after rate announcements this year whenever the announcement was as expected.
Also commenting ahead of today’s hike, the Singapore-based crypto trading firm QCP Capital said in an update that a 100-basis point hike has now been “priced out by the market.”
“Every [Fed] meeting this year has seen a positive immediate market reaction to the rate decision. We expect the same for this one,” the firm wrote. It added that there’s “a good chance” Fed Chair Jerome Powell could indicate that the central bank will revert to a 50-point hike at its next meeting if growth slows and inflation eases.