Crypto Market On Edge With FOMC Meeting In Focus, What To Expect?

As the crypto market has gone through volatile trading lately, all eyes are now on the potential outcomes of the Federal Open Market Committee (FOMC) meeting later today. Meanwhile, market expectations lean towards maintaining current interest rates, but the real intrigue lies in the Fed officials’ projections for the coming year.

Notably, the analysts predict a cautious approach amid a strong labor market and persistent inflation, with the focus shifting to potential rate cuts in 2024.

Interest Rates Hold Steady, But What Lies Ahead?

Given the robust labor market and cooling inflation data, the Federal Reserve is anticipated to keep interest rates unchanged. The latest U.S. Consumer Price Index (CPI) data showed that the inflation has slowed to 3.1% in November, in line with the market anticipation.

Meanwhile, Gargi Chaudhuri of BlackRock suggests a cautious “pause” from the Fed, emphasizing the need to observe the economy’s reaction to existing restrictive rates, according to Barron’s report. While the dot plot might indicate a paucity of rate hikes in the future, attention shifts to the potential for rate cuts in 2024.

Notably, financial markets foresee a cut as early as next spring, with the probability increasing to more than 50% in May. However, Morgan Stanley strategists predict a more conservative approach, with the first cut likely in June 2024.

Despite market expectations, Fed Chair Jerome Powell is expected to adopt a hawkish tone at the FOMC meeting press conference. Jason Pride of Glenmede suggests Powell may emphasize that it’s premature to consider rate cuts and underscores the possibility of additional hikes.

On the other hand, Diane Swonk of KPMG emphasizes Powell’s need for careful articulation in navigating the delicate balance between inflation control and economic growth. The markets are poised for uncertainty, awaiting signals from the FOMC about the trajectory of interest rates in the coming months.

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Will Crypto Market Regain Momentum Post FOMC Decision?

As the speculations over the FOMC meeting looms, indications suggest a likely continuation of holding interest rates steady at 5.25-5.50%. Notably, the Fed’s recent gatherings in November and September reinforced this stance, emphasizing a need for economic evaluation before any adjustments.

Meanwhile, the decision to pause rate hikes, initiated during the July meeting, aimed to balance inflation concerns against potential impacts on economic growth. However, this anticipated stability in interest rates contributes to investor caution, reflecting a broader trend seen in cryptocurrencies like Bitcoin.

As of writing, the global crypto market cap slipped 2.02% from yesterday to $1.54 trillion, while the trading volume also fell 14.7% to $67.56 billion. Despite the recent slump, the fear and greed index reading stood at 73, suggesting a “greed” sentiment in the digital asset space.

Meanwhile, the decline in the broader market is attributed to the recent losses in Bitcoin and major altcoins in the crypto space. The Bitcoin price declined 1.62% to $41,101.10 during writing, and its declining trading volume of 25.85% also reflects the cautious stance of the investors.

Simultaneously, the Ethereum price noted a slump of 2.29% to $2,175, while the Solana price plummeted 8% to $65.77 as of writing on December 13.

Notably, higher interest rates often prompt a retreat from risk-based assets. However, the CME FedWatch tool projects a 98.4% probability of the Fed maintaining the current rate, underscoring the prevailing sentiment of stability.

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