The Federal Open Market Committee (FOMC) meeting is already underway, with chairman Jerome Powell set to speak at 2:30pm Eastern time.
The meeting presents the US Federal Reserve with the opportunity to evaluate economic growth projections and decide on monetary policies. So what could it mean for crypto?
This month’s committee meeting is already showing signs of taking a different turn from what has been the case in the recent past.
Ten consecutive FOMC meetings leading to this have ended with interest rate hikes, but data from the recently released Production Price Index (PPI) and Consumer Price Index (CPI) strongly indicates a possible difference in the outcome. CPI increased by only 0.1% for the month and 4% from a year ago – its lowest in the last two years.
Overall, important indicators were well within the predicted estimates, leading to high chances that the Federal Reserve will not raise interest rates this time.
Given the current outlook, the Fed could potentially take one of two actions instead – maintain current interest rates or update its forward guidance to provide insights into future monetary policy decisions.
A decision to keep interest rates unchanged can be perceived as a favourable outcome for the crypto market. It may indicate that the Fed remains accommodative and supportive of economic growth, which could boost investor confidence and sentiment towards cryptocurrencies.
Also, should the Fed decide against increasing interest rates, traditional fixed income investments will similarly offer lower interests. This may trigger capital inflow into the crypto market as investors search for alternative investment opportunities with chances of higher returns.
If the Fed chooses to update its forward guidance to provide insights into their future monetary policy decisions, then market sentiments may tilt according to the suggested policies.
While many traders have taken contrasting standpoints regarding the outcome of the FOMC meeting on the crypto market, one common factor they all agree on is the potential incoming volatility.
Speaking to Coin News, Terence Ribaudo, Web3 market analyst and CEO of Launchpad.xyz, shared his views on how the FOMC meeting could affect the crypto market.
He follows the prevailing sentiment among market participants that there is unlikely to be an interest rate hike.
“The FOMC outlook is flat, with US swaps pricing in no change to interest rates,” he said.
In the absence of any increase in rates, Ribaudo believes one key indicator that could sway sentiments is the tone of the meeting. He expects short-term price movements before the markets make a downward turn.
“If this happens, the tone of the meeting will be the most prevalent variable to observe. Likely outcome now is some short-term volatility and then a continued downward trend. Important levels to watch on $BTC are $26,700 and $25,500,” added Ribaudo.
Tuesday’s CPI data release gave a snippet of the imminent volatility. Bitcoin rallied to $27,386 after data showed a lower percentage increase in inflation. Although it has retraced back to the $26k mark, this level could be the starting point of a run in either direction depending on the meeting’s outcome.
Traders must therefore adapt their strategies to suit the current outlook as well as any surprises the meeting may spring. Current sentiments surrounding the outcome of the FOMC meeting shows striking similarities with that in March this year.
Many analysts including Goldman Sachs economists predicted that the Feds will not increase interest rates following the collapse of SVB on 10 March. As a result, the crypto market reacted with Bitcoin surging to $29k. When the Feds announced a 25 basis point hike, a sharp 7.8% retracement followed.
While popular consensus can be used incorporated in decision making, scenarios like this again prove that they are not foolproof.
Ahead of the FOMC meeting, traders should adopt a comprehensive approach that encompasses various elements, such as fundamental and technical analysis, market research and effective risk management to improve chances of profitability.