As broadly expected by market participants, the US Federal Reserve just lifted interest rates by 25 bps, taking them to their highest level in 22 years at 5.25-5.5%.
In his post-policy announcement press conference, Fed Chair Jerome Powell signaled that the Fed is maintaining the optionality to hike interest rates further, depending on incoming US economic data.
Most analysts seem to think that was probably the last interest hike from the Fed of this tightening cycle.
Key Private Bank’s managing director of fixed income Rajeev Sharma told the financial press that “in our opinion, the rate hiking cycle is done and the Fed will now pause for the rest of the year”.
Manulife Investment Management’s global chief economist Frances Donald said that “we now believe that the Fed is on a prolonged ‘hawkish hold’… their next move will likely be a cut but it will take until 2024 until we see it”.
“That said”, he added, “Powell will have no choice but to keep the threat of hikes alive, lest he encourage markets to prematurely price in cuts and reignite inflation expectations”.
Inflation in the US remains well above the Fed’s 2% target and the labor market remains hot, which explains their reluctance to allow a premature easing in financial conditions.
Despite the Fed maintaining its bias toward more hikes and analysts broadly not saying they expect any rate cuts this year, US money markets shifted to price in a strong likelihood that the Fed cuts interest rates in September.
As per the CME’s Fed Watch Tool, the money market-implied probability of a 25bps interest rate cut back to 5.0-5.25% in September leaped from zero this time yesterday to 78%.
US yields slipped a few bps across the curve as a result, as did the US Dollar Index (DXY).
Major US equity benchmarks like the S&P 500, Nasdaq 100 and Dow Jones Industrial Average were broadly flat.
Here’s How Crypto Reacted
Crypto prices were choppy but are currently higher versus their pre-Fed policy announcement levels.
Solana (SOL) is the biggest mover in the top 10 by market cap, up close to 10% on the day.
Bitcoin is currently retesting resistance in the form of its late-June/early to mid-July lows at $29,500, with a break above this level potentially set to open the door to a push higher towards the 21DMA just above $30,000, with the 50DMA having recently acted as strong resistance.
BTC’s medium-term technical bias continues to look very positive, with the BTC price still in a strong uptrend for 2023 and well above its 200DMA.