• The US Federal Reserve recently released minutes from its 1st February meeting, indicating that more interest rate hikes are on the way.
• Financial markets have been increasing their Fed tightening bets in light of recent hot data releases.
• Money markets now imply a 27% probability of a 50 bps rate hike in March, with rates expected to peak at 5.25-5.5% by June and possibly extend to 5.50-5.75% by July.
Rate Hikes Expected from Fed
At its 1st February meeting, the US Federal Reserve’s Open Market Committee (FOMC) raised interest rates 25 basis points (bps), slowing down from a 50 bps rate hike during the previous meeting in 2022. This was preceded by four consecutive 75 bps rate hikes. The FOMC stated that further increases to interest rates may be necessary in order to sustainably bring inflation back to its 2% target, with “almost all” members backing this decision.
Markets Upping Tightening Bets
Financial markets have been increasing their Fed tightening bets following a string of hotter-than-expected US data releases, including January jobs report, CPI report and ISM PMI survey results – making it increasingly likely that the Fed will raise interest rates again soon. At one time, money markets implied just a 20% chance of no rate hike in March; now they imply around a 27% probability of a 50 bps rate hike next month instead.
Rates Peaked at 5.25-5.5%?
Currently, markets suggest that interest rates will peak at around 5.25-5.50%, likely by June 2021; however there is also now around 30% chance that these could go an extra 25 bps higher to the 5.50-5.75% range by July 2021 if economic conditions warrant it so doing so would help curb inflationary pressures effectively and rapidly enough..
Headwind for Crypto?
All these expected increases in interest rates could create some headwinds for crypto assets such as Bitcoin due to increased competition from traditional investments like stocks or bonds which offer better yields/returns than crypto assets do currently as well as greater security due to their FDIC insurance status – factors which will most likely lead investors away from crypto and towards traditional investments over time..
Conclusion
In conclusion, while the exact direction of where the Federal Reserve will take monetary policy remains uncertain right now; what is certain is that more increases in US interest rates appear all but inevitable given current economic conditions – something which could pose medium term challenges for crypto investors going forward as rising yields make other investment vehicles increasingly attractive alternatives when compared to digital assets..