Crypto Prices Could Pump This Week as Federal Reserve Interest Rate Decision Approaches
Prices of major crypto assets could pump hard this week if the Federal Reserve in the US even hints at slowing the pace of rate increases later this year.
The expectation that markets could rally this week leading up to – and potentially following – the Fed’s rate announcement on Wednesday is shared by both investment banks and members of the crypto community. However, opinions still differ on what a rally will look like and what exactly is needed for it to happen.
It is widely expected by analysts that the Fed will raise rates by 75 basis points this week, but economists are unsure what will happen at the next Fed meeting in December. The expectation for a 75-point hike at this meeting is also shared by the market, with derivatives exchange CME’s FedWatch Tool currently indicating an 86% probability that the Fed will raise rates by 75 basis points.
Notably, the tool also indicates a 14% chance that rates will only rise by 50 basis point, something that would certainly trigger a rally in the crypto market.
According to a note from the major investment bank Merrill Lynch, a discussion about slowing the pace of rate hikes starting in December have likely taken place at the Fed. The bank therefore expects that Fed chair Jerome Powell will communicate that such discussions have taken place, which could open the door for moving to a 50-basis point hike in December.
Similarly, Goldman Sachs, another large Wall Street bank, said in a note that it also believes in a 75-basis point hike this week, likely followed by a 50-basis point hike in December.
“We expect the FOMC to eventually pair that slowdown to 50bp in December with a somewhat higher projected peak funds rate in the December dot plot. We are adding another 25bp hike to our own forecast—which now calls for hikes of 75bp in November, 50bp in December, 25bp in February, and 25bp in March—and now see the funds rate peaking at 4.75-5%,” the bank wrote.
Will Powell’s comments make crypto rally?
The question now is whether comments from Powell about a possible slowing in rate hikes starting in December will be enough for crypto and other risk assets to rally.
On crypto Twitter, many users are hopeful that just that will happen, with some arguing that bitcoin (BTC) will “pump” as soon as the Fed makes its announcement this Wednesday:
I think #Bitcoin will pump on this FOMC meeting!
— Crypto Rover (@rovercrc) October 31, 2022
Others, such as the popular economist and crypto trader Alex Krüger, said he believe both bitcoin and ethereum (ETH) will “ride higher” following this week’s Fed announcement. “Uptrend remains,” Krüger added in the tweet:
Thinking crypto lower tomorrow together with stocks, some late Friday hedging, quiet weekend, ETH mid to low 1400s, BTC mid 19000s get bought, then ride higher with the FOMC next week. Uptrend remains.
— Alex Krüger (@krugermacro) October 27, 2022
As always, if wrong, feel free to tag me in the replies.
How the week will play out though, remains anyone’s guess at this point. But with last week’s surprise rally that took bitcoin from about $19,000 to $21,000, maybe the bulls will be right this time.
Is bitcoin’s recent price action an early signal that the Fed is about to pivot? Wednesday’s announcement could give us at least a part of the answer.
