After raising interest rates by 425 bps last year, with four consecutive 75 bps hikes and a 50 bps hike in December, the market is expecting another slowdown in rate hikes to 25 bps on Wednesday.
Experts’ perception of Fed rate hike
Roger Fergusonformer Fed vice chairman, expects a 25 basis point rate hike at this month’s FOMC meeting. He believes Fed Chairman Jerome Powell will consider a cooling of inflation, but still far from the 2% target, suggesting two moves this year. However, the Fed will not pivot now due to current conditions.
At the press conference, he notes that the Federal Reserve will likely say that “inflation seems to be slowing but [is] still far away from their 2% target.” pic.twitter.com/Qvog7e1o0N
Worldwide Exchange (@CNBCWEX) January 31, 2023
Fed officials predicted in December that they would pause when rates rise above 5%, but Wall Street traders anticipate a halt slightly below that level.
Christopher J. Waller, a member of the Federal Reserve Board of Governors, says the Fed needs six months of data, not three months of positive data, to consider a pivot. Thus, the Fed will effectively pause rate hikes before its May 2-3 meeting.
Brett Ryan, senior U.S. economist at Deutsche Bank, thinks the Fed will likely proceed with a 25 basis point rate hike. However, this is not the slowdown, but the pivot when the Fed is confident in the economy.
Mohamed A. El-Erian, an Egyptian-American economist and president of Queens’ College in Cambridge, said that it would be “shocked“if the Fed did anything other than a 25 basis point rate hike this week. However, a 50 basis point hike should be considered because of risk management on the monetary policy side and the possibility that inflation will become difficult to control.
Impact on the crypto-currency market
The crypto market had a wonderful rally in January on expectations of a Fed pivot due to cooling inflation and positive employment data. The price of bitcoin recorded a 40% rally during the month, reaching a high of $23.8k.
If the Fed opts for a 25 basis point rate hike and Powell hints at a dovish approach and an economic recovery, the bitcoin price is likely to surpass $25,000. On the other hand, a 50 basis point hike could send the cryptocurrency’s price plummeting.