Overview of Fed Meeting Minutes
• The recently released minutes of the 1st of February meeting of the Federal Open Market Committee (FOMC) suggest more interest rate hikes are coming from the US Federal Reserve.
• This month’s string of stronger/hotter-than-expected US data releases has triggered a big shift in market expectations, as markets now imply a 27% probability that the Fed might raise interest rates by 50 bps (to 5.25-5.50%) next month.
• Money markets imply around a 30% chance that rates peak in the 5.50-5.75% range by July, which could be a major medium-term headwind for crypto.
Interest Rate Increase
At their February meeting, the Federal Open Market Committee (FOMC), comprised of an assortment of Federal Reserve Governors and regional Fed Presidents, raised interest rates 25 bps to a 4.50-4.75% target range. This was a slowdown following a 50 bps rate hike at the last meeting of 2022, which was proceeded by four consecutive 75 bps rate hikes.
Risks to Inflation Outlook
The FOMC meeting minutes stated that „upside risks to the inflation outlook remained a key factor shaping the policy outlook,“ while some officials warned that „insufficiently restrictive“ stance could hamper progress on bringing down inflation. Therefore, FOMC members expect further increases to interest rates will be necessary to ensure that inflation comes sustainably back to its 2.0% target.
Hot Data Forces Markets to Up Tightening Bets
Financial markets have spent recent weeks increasing their bets on further Fed tightening due to hot US data releases, including January jobs report results, CPI report and ISM PMI survey results.. At one point in late January most analysts were forecasting just two more 25 bps interest hikes – one at the February meeting and then one at March; however this is no longer seen as likely with money markets implying around 27% probability that 50 bps increase may happen next month instead and peaking in June/July with 5.25-5.75%.
Impact on Crypto
This potential rise in US interests will be a major medium-term headwind for crypto as it will make other investment options more attractive compared to digital assets like Bitcoin and Ethereum etc due to higher returns from traditional investments like stocks or bonds etc .