Author: LianGuaiBitpushNews Mary Liu
On the afternoon of September 20, Eastern Time, the Federal Reserve announced that it would maintain interest rates at current levels. This decision is the second pause in interest rate hikes since March 2022 and is in line with market expectations.
In its statement, the Federal Reserve wrote that the labor market continues to slow down, coupled with tightening credit conditions, leading to this decision by the committee.
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After the news was released, the crypto market remained relatively stable. Within minutes of the central bank’s announcement, the price of Bitcoin remained around $27,200, briefly falling about 1% to $26,900, and then rebounded to above $27,000 support level again at the time of publication. Ethereum’s decline was slightly lower than 1%.
In the past month, Bitcoin has risen by about 3.5%. Meanwhile, the price of Ethereum has struggled to break through and has fallen by about 3% in the past month and about 6% in the past six months.
The S&P 500 and Nasdaq Composite both closed lower that day, with the Dow Jones Industrial Average falling about 76 points, the Nasdaq falling 1.5%, and the S&P 500 falling 0.94%.
Powell’s Speech
LianGuai previously reported that the Federal Reserve has been raising interest rates in the most aggressive way over the past 18 months, with 11 consecutive rate hikes from March to July last year, aiming to alleviate the country’s highest inflation in over 40 years.
However, concerns about whether a soft landing can be achieved still exist in the market. At a subsequent press conference, Federal Reserve Chairman Jerome Powell warned that there is still a long way to go for inflation to reach its target. He said, “The U.S. banking system is sound and resilient, but tightening credit conditions for households and businesses could affect economic activity, employment, and inflation, and the extent of these effects is still uncertain.”
Powell does not want to send a signal to investors that interest rate hikes have already been completed. He reiterated that the upcoming economic data will provide information for the central bank’s decision and said, “We never intended to signal a time for any rate cut. There will be a time for rate cuts when appropriate, and there are still too many uncertainties. When we enter 2024, the Federal Reserve will consider policy lags and data.”
Interest Rate Predictions
The latest quarterly forecasts show that out of the 19 committee members, 12 expect further interest rate hikes of 25 basis points this year, while the other 7 believe that there is no need for interest rate hikes. This would raise the federal funds rate to around 5.625%, with a range of 5.5% to 5.75%.
Compared to June, there has been little change in the divergence between hawks and doves. At that time, out of the 18 committee members, 12 expected further interest rate hikes at the current level.
For 2024, the median year-end forecast for the key interest rate of the Federal Reserve has risen from 4.6% in June to 5.1%. As early as June, eight committee members predicted that the key interest rate of the Federal Reserve would eventually reach 4.875% or higher; two members predicted a rate of 4.625%; eight dovish members predicted that the key interest rate of the Federal Reserve would fall to 4.375% or lower.
The following are the changes in viewpoints in the September forecast: now, 10 members believe that the year-end rate will be at least 5.125%. Four other members have a rate of 4.875%; five members expect the year-end rate not to exceed 4.625%.
Federal Reserve officials also expect the rate to remain around 5.1% next year, a significant increase compared to the forecast of 4.3% in June. They also expect stronger economic growth this year, with a projected real GDP growth of 2.1%, compared to 1% in June.
Impact on Risk Appetite
Ruslan Lienkha, Market Director at YouHodler, believes that the rate pause is unlikely to spark bullish sentiment in risk assets.
Lienkha stated in an interview with The Block, “Even if the same rate is maintained until the end of 2023, the yields on fixed income will continue to grow, which will exacerbate the situation of risk assets.” He added that the current target rate of 5.5% has not yet been fully reflected in the market, and the current rate will impact the market for at least a few months.
Analysts are optimistic that the Federal Reserve will keep the key rate in the range of 5.25% to 5.50% before the end of the year.
James Butterfill, Research Director at CoinShares, commented that as the Federal Reserve becomes increasingly dovish, there will be a rate cut of about 75 basis points in 2024.
David Wells, CEO of Enclave Markets, stated that confirmation of the possible end of the rate hike cycle is a positive signal for the market. He tweeted, “Bringing certainty to the market by pausing rates may be a positive signal for overall sentiment and could increase interest in risk assets in the short term.”
Butterfill believes that the impact of high rates will increasingly pressure the economy in the coming months. He added that this will make it more difficult for the Federal Reserve to maintain a hawkish monetary policy stance. He said, “Looking ahead, as the pressure of high rates on the economy grows, the prospect of further rate hikes will weaken, which could support Bitcoin.”
Asgard Markets, a market research company, expects some profit-taking after the Federal Reserve’s decision. The company stated in a report, “Positions and sentiment are not as light or heavy as earlier this year, and there are not many new catalysts, which means that ‘in-the-money’ participants will give up some chips and reassess.”
The Federal Open Market Committee (FOMC) is scheduled to hold another meeting on October 31 and announce the next rate decision on November 1. This means that the September consumer price data, expected to be released on October 12, will be particularly important for determining the central bank’s next steps. According to CME’s FedWatch tool, investors currently estimate a 70% probability of keeping rates unchanged at the November meeting.
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