FOMC Holds Rates Steady

Yesterday the Federal Reserve held rates at 525-550 bps, as was the market's overwhelming expectation. However, Jay Powell also signaled the likelihood of another interest rate rise this year.

Bitcoin, which usually reacts dramatically to these events, failed to register significant movement, underscoring the fact that the decision came as no surprise and that traders are not concerned about the slight adjustment to expectations. Are these events losing their impact on the crypto markets?

Why Are FOMC Meetings Important?

Any change in the interest rate is keenly anticipated by traders, especially crypto traders, since the crypto market is particularly sensitive to macro factors.

An increase in rates allows traders and investors to earn more on their money, "risk-free", simply by collecting interest—meaning they are less likely to take a chance on more volatile assets like stocks. Crypto is high-risk, and relatively illiquid compared to other major asset classes, so when interest rate decisions come in and the market digests the new information, it can have a marked effect.

In this instance, markets were pricing in a 99% chance of a rate hold, so there was very little capital caught unawares and redeployed.

Is This The End Of Rate Rises?

It's possible that this was the last rate rise of this tightening cycle, despite Powell's warnings. The market is currently giving a 30% chance of a further rise of 0.25% on November 1, with the majority expecting a hold. Traders are setting the chances of a rise to 550-575 bps or even 575-600 bps at 45% for December 13—still an outside chance (just). Moving into 2024, the expectation is that rates will start to fall.

This will decrease the risk-free return, and make it cheaper to borrow money for trading, boosting risk assets like crypto. Other measures also suggest that global liquidity may have reached an inflection point, and the drought may soon start to ease.

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