The Bitcoin and crypto market faces the most important event of this week and probably the entire month of June today with the Federal Open Market Committee (FOMC) meeting of the US Federal Reserve (Fed) at 2:00 pm EST (release of the interest rate decision) and the following press conference at 2:30 pm EST. For the first time since the Fed started its rate hike cycle in March 2022, an overwhelming majority expect a pause.
The CME FedWatch tool currently indicates a 95.3% probability that there will be no change at today’s meeting. A breather, in other words, keeping interest rates at current levels, would give the central bank more time to observe the effects of its fight against inflation.
And big banks agree with these expectations. As macro analyst Ted (@tedtalksmacro) shows, only one of nine major banks, namely Citi, expects another 25 basis point rate hike. All other major banks such as Goldman Sachs, J.P. Morgan and Morgan Stanley expect a pause.
Most important, therefore, will be the new “dot plot”, the Fed members’ projection of future interest rate path. Any correction to the upside will likely drive equities down and the dollar index (DXY) up, according to the analyst. Bitcoin and crypto are likely to follow this trend.
Happy hawkish pause day!
The market gives a 96% probability that the Fed pause today after hiking rates at every meeting since March 2022.
Major banks agree.
Most important, will be the new ‘dot plot’ —> any revisions higher would spook equities lower and the dollar higher. pic.twitter.com/M8UQkmXoZG
— tedtalksmacro (@tedtalksmacro) June 14, 2023
The US bond market is currently pricing in another rate hike by the Federal Reserve and a rate cut by the end of 2023, as Walter Bloomberg reported today. However, it is likely to be more binary, says Michael Contopoulos, director of fixed income at Richard Bernstein Advisors, in a note.
Either the Fed does not cut, or growth falls off so hard it is cutting a lot,” Contopoulos says. His guess is the former. “Higher than expected CPI could very well tilt them to a hike. Otherwise, I think they will pause,” he says.
The bond market is pricing in 200 basis points of rate cuts in 2024, the expert says, adding that this would mean the recession won’t hit until next year. “I tend to agree with that”.
However, it is not inconceivable that the Fed could hike further after a pause. As the Bank of Canada (BoC) shows, this is entirely possible. The BoC raised rates again by 25 basis points (to 475 bps) in June after a two-month pause.
And the probability of another quarter-point rate hike in July is 63%, according to the CME FedWatch Tool. In this respect, the dot plot could be the trend-setting indicator today to gauge whether equities as well as Bitcoin and crypto are falling or rising.
If the dot plot sees any downward revisions, BTC and crypto are likely to start a new upward push. Otherwise, any upward revisions (“higher for longer”) of the projections would be rather bearish.
And as on-chain analyst Ali Martinez noted today, the Bitcoin price is on thin ice:
Notice the most important support zone is between $22,785 and $23,595 where 1.34 million wallets hold 450,000 $BTC. On the flip side, #BTC faces stiff resistance between $26,000 and $28,250 where 5.18 million wallets bought 2.1 million BTC.
At press time, the Bitcoin price remained relatively calm ahead of today’s interest rate decision. In the 1-hour chart, BTC shows a good chance of a breakout from the current mini range (coincides with the $26,250 resistance to the upside of Ali) around the FOMC meeting, which should trigger another round of volatility.
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