Rate hike likely as FOMC begins final monetary policy deliberations, but BTC seems unfazed

For 16 months, the US central bank has been long on inflation fears and short on interest rate surprises.

On Tuesday, the central bank’s Federal Open Market Committee (FOMC), which sets monetary policy, will begin deliberations that are likely to continue that trend the following day with a 25 basis point interest rate hike and much teeth gnashing about the continued threat of inflation.

The CME Rate Watch tool currently projects a 98% probability of another quarter-point increase that would raise the federal funds rate to a range of 525 to 550 basis points—the highest level in about 1[ads1]7 years. The FOMC suspended its 15-month diet of monetary tightening last month, raising investors’ hopes that it had dove for the foreseeable future. But in a statement after the decision, the bank suggested that inflation remained a concern and that further rate hikes were possible.

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the FOMC said. “The committee will be prepared to adjust monetary policy as necessary if risks arise that could prevent the achievement of the committee’s objectives. The committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflationary pressures and inflationary expectations as well as financial and international developments.

Crypto markets have been strangely resistant to recent macroeconomic pronouncements. With a few blips, bitcoin has traded in a range between $29,000 and $31,500 for much of the past two months. It recently changed hands at $29,100, down more than 3% in the last 24 hours. “It will take a new catalyst to excite bitcoin traders,” Edward Moya, senior market analyst at forex market maker Oanda, wrote in a Monday note.

On Tuesday, the Conference Board will publish its latest Consumer Confidence Index (CCI), which reflects sentiment around the economy. Thursday’s jobless claims report will provide the latest data on economic growth, while Friday’s personal consumption expenditures (PCE), a preferred Federal Reserve inflation measure, may or may not support the bank’s latest move.

The Federal Reserve will take its final steps to try to reduce inflation to its long-awaited target of 2%. The reading of 3% in June continued an encouraging trend, slightly beating expectations and falling from 4% in May. Just a year ago, inflation was a roaring 9%. Still, the Fed has been concerned about a still sizzling labor market that usually matches rising prices and a stubbornly high core PCE. In comments to the House Financial Services Committee a week after the Fed halted interest rate hikes, Fed Chairman Jerome Powell noted that “almost all FOMC participants expect it would be appropriate to raise interest rates somewhat further by the end of the year.”

Consumer confidence index

Last month, the CCI rose to 109, up seven points from May and the highest level since January 2022 as consumers cheered a buoyant job market and a lower likelihood of recession. The current consensus is for the CCI to rise to 112. On a potentially bitter note: The Conference Board survey also found that consumers have not completely ruled out the possibility of a recession.

Last week’s jobless claims worsened last week, at least for analysts and investors who were hoping for signs that the labor market would cool. The 228,000 initial jobless claims for the week ended July 15 were about 9,000 fewer than the previous week and lower than expected. The forecast is that initial claims for the week ending July 22 will rise to 235,000, a small number that is unlikely to disrupt the asset markets.

May orders for durable goods rose 1.7%, their third straight monthly increase, providing another sign that the US economy was doing anything but shrinking. Expectations are for a 1.5% increase when the Census Bureau releases June data.

Personal consumption expenditure

PCE has fallen steadily over the past year, another positive sign for inflation watchers. Corn’s 3.8 year-over-year reading was down from over 5% at the start of the year. Core PCE, which strips out more volatile food and energy costs, has been between 4.6% and 4.7% over the past three months, a less upbeat trend that has worried the Fed, although expectations are for 4.2% in June.

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