FOMC Comes In On Expectations

The Fed has raised interest rates by the expected 25 basis points, bringing the headline rate to 525-550. This is widely expected to be the last interest rate rise of the cycle, following positive economic data that indicates not only is inflation cooling, but that the US might even avoid recession in the process.

99% Confidence

Today's 0.25% hike was almost fully priced in by the market, which gave the decision 99% probability. Despite some suggestion of further rises by the Fed, no more increases are expected. For the next FOMC meeting, in September, the market is pricing in just a 20% probability of another 25 bps increase.

Barring a serious mishap (inflation picking up again), the Fed may have succeeded in threading the needle. The question now becomes: How long will rates remain at the current level, before the Fed starts making cuts?

Risk-On?

Traders will be encouraged that the last 17 months of aggressive rate rises are at an end, leading to increased risk appetite. A weaker dollar is now also possible, as other countries continue with their own rate rises, meaning a tailwind for risk assets like stocks and crypto.

Bitcoin often reacts strongly to the FOMC's decisions, but in this case, there was very little change. The market was almost unanimous about the 25 bps rise, meaning that there were almost no traders who were caught out and needed to reposition with the new information.

The Role Of The Fed

Ironically for a decentralized asset, the federal funds rate is one of the most important factors that impacts bitcoin's price.

To give a sense of how the global financial system works, the importance of the Fed, and what the future might bring, check out this press conference by Jay Powell.

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