Fearing A Large Interest Hike? These Factors Can Make The Fed Pivot

The crypto market is in a major rut as prices barely have any bullish sentiments before the Fed’s big decision. The market is completely dependent on the result of the FOMC meeting. A bad reading of inflation in the US Consumer Price data means that the Fed is set to move forward with another jumbo hike. However, certain factors in the broader market may cause the Fed to pivot, causing a strong rally.

Bitcoin is hanging around the $19K mark while Ethereum continues to remain below the  $14K mark. 

Will The Fed Pivot?

The Federal Reserve is engaged in quantitative tightening to combat soaring inflation. The September CPI pointed out that the inflation levels have not fallen to meet expectations. The Fed is therefore likely to push a 75 bps or 100 bps interest rate hike. However, a number of factors may cause the Fed to pivot. 

The quantitative tightening from the Federal Reserve is putting increasing stress on the credit market. The credit spread has risen by over 70% in a year, which makes it difficult for businesses to borrow. Similarly, the risk of default on corporate debt has increased to a dangerous level due to the strength of the dollar. 

The shrinkage in treasure liquidity is another threat that can cause the Federal Reserve to reverse its course. The central bank is engaging in quantitative tightening by removing government and mortgage bons from its balance sheet. The Fed’s balance sheet expanded during the pandemic due to quantitative easing.

Lastly, the risk of global financial stability may force the Fed to pivot. The dollar has outpaced Euro, which can destabilize the global market. The World Bank is already sounding off recession alarms for 2023.

Is The Rate Hike Priced In

The Fed will reveal its interest rate decision in less than an hour. A 75 bps hike and a 100 bps hike are the only two possibilities. While a 75 bps hike is likely priced in and will not lead to a crypto meltdown, a 100 bps hike can be bad news for the market.