The big day the markets have been waiting for has arrived. Today at 9:00 pm, the Federal Reserve will announce its seventh interest rate decision of the year. The gold, currency and crypto markets will try to catch cues from the Fed rate decision and the tone in the statements. Because the decision he will make and the speech made by Chairman Jerome Powell will be effective in determining a direction for the markets.
What would be the effect of a slowdown signal in the Fed rate decision?
cryptocoin.comAs you follow, the Fed increased the policy rate range from 2.25% to 2.50% to 3.00% to 3.25% with a 75 bps increase in September. In addition, after the meeting, the markets evaluated Jerome Powell’s speech and the projections he shared as hawkish. Consensus estimates at today’s FOMC are 75 bps. CME FedWatch Tool gives this rate increase an 88.8% probability.
Therefore, the markets regard the 75 bps increase as almost certain. However, it is possible that Powell’s message after the meeting and the discourse on whether there is a Fed pivot in the future will have an impact on the market perception. In a report in the Wall Street Journal last week, it was mentioned that Fed members will discuss the slowdown in rate hikes. Even this news created a surge in the gold and cryptocurrency markets. The dollar index (DXY), on the other hand, dropped below the 110 level from its 114 peak. However, this was not permanent. So, a hint that the Fed will slow down is likely to spark a new rally in the markets. However, the dollar will likely continue to lose altitude.
Does the Fed like surprises?
What could this tip be? For this, it is important whether the decision to be taken will be taken unanimously or by majority vote. The lower rate demand from some members is likely to be regarded as an indication of softening. Although there are those who wonder if there will be a Fed rate cut, there is no equivalent in the real world for now. Because Fed interest rate decisions generally follow an approximate course with consensus estimates. In addition, it is not possible for the Fed to remove the tightening it has done so far, at the expense of its entire image. Therefore, there is no need to take this improbable rumor seriously.
However, we also know that the Fed follows macro indicators closely and does not want to cause serious problems in the economy. In other words, Powell dreams of a soft landing. Naturally, the CPI data comes first among these indicative data. The Fed considers the core CPI as an anchor for policy setting. However, the latest data do not indicate that the Fed will slow down at all.
On the other hand, it would not be right to ignore the possibility of recession and the fear it creates. In fact, it stands as a very strong risk factor in 2023. Therefore, most likely the Fed will increase by 75 bps in line with expectations. However, in order not to startle the markets too much, he will give the explanations a mix of hawks and pigeons. Since the markets have already priced this in, it will return to an environment of uncertainty without serious action.
Now let’s move on to the impact of the Fed’s decision. If the Fed announces its rate decision as 75 bps, its impact is likely to be limited as markets have priced in heavily. However, there will still be pressure on the gold and Bitcoin market. On the other hand, it is possible for the dollar to take a step back towards its multi-year highs. However, the main determining factor in the size of these waves will be Powell’s speech, the Fed hawkish tone. Although unlikely, if the Fed imitates the central banks of a limited number of countries in the world and cuts interest rates, it will most likely come as a shock. If that happens, gold and cryptocurrency investors will definitely thank the Fed.
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