Rate Hike Likely as FOMC Begins Latest Monetary Policy Deliberations, but BTC Seems Unmoved

For the past 16 months, the US Federal Reserve has relied on fears of inflation and little on interest rate surprises.

On Tuesday, the central bank’s Open Market Committee (FOMC), which sets monetary policy, begins deliberations, which are expected to continue this trend the next day with a 25 basis point rate hike and much gnashing of teeth over the lingering threat of inflation.

The CME Rate Watch tool is currently forecasting a 98 percent chance of another quarter-point hike, which would lift the federal funds rate to a range of 525 to 550 basis points — the highest level in about 17 years. The FOMC suspended its 15-month monetary tightening last month, briefly raising hopes among investors that it may have shifted to more dovish monetary policy in the foreseeable future. However, in a statement following its decision, the bank indicated that inflation remained a concern and another rate hike was possible.

“In assessing the appropriate monetary policy stance, the committee will continue to monitor the impact of incoming information on the economic outlook,” the FOMC said. “The Committee would be ready to adjust the monetary policy stance, if necessary, if risks arise that could impede the achievement of the Committee’s objectives. The Committee’s assessments take into account a wide range of information, including insights into labor market conditions, inflationary pressures and expectations, and financial and international developments.

Crypto markets have been curiously resistant to the latest macroeconomic statements. With some blips, Bitcoin has traded in a range between $29,000 and $31,500 for most of the past two months. The price recently changed hands at $29,100, down more than 3% in the past 24 hours. “It takes a new catalyst to excite bitcoin traders,” Edward Moya, senior market analyst at forex market maker Oanda, wrote in a note Monday.

On Tuesday, the Conference Board will release its latest Consumer Confidence Index (CCI), which reflects sentiment regarding the economy. Thursday’s jobless claims reports will provide the latest data on economic growth, while Friday’s personal consumption expenditure (PCE), a favorite measure of inflation for the Federal Reserve, may or may not underpin the bank’s latest move.

The Federal Reserve will make its latest moves to bring inflation down to its long-held 2% target. The June reading of 3% continued an encouraging trend, slightly beating expectations and falling from 4% in May. Just a year ago, inflation was 9%. Nonetheless, the Fed remains concerned about a still-sizzling labor market, which typically accompanies rising prices and stubbornly high core PCE. In remarks to the House Financial Services Committee a week after the Fed halted rate hikes, Fed Chair Jerome Powell noted that “almost all FOMC participants believe it will be appropriate to raise interest rates a little more by year-end.”

consumer confidence index

Last month, the CCI rose to 109, up seven points from May and its highest level since January 2022, as consumers cheered a buoyant job market and less likelihood of a recession. The current consensus is for the CCI to rise to 112. On a potentially bitter note, the Conference Board poll also found that consumers have not completely ruled out the possibility of a recession.

Last week’s jobless claims worsened last week, at least for analysts and investors hoping for signs of a slowdown in the job market. The 228,000 initial jobless claims for the week ended July 15 were about 9,000 fewer than the previous week and lower than expected. The forecast expects initial claims to rise to 235,000 in the week ending July 22, a small number that is unlikely to rattled asset markets.

Durable goods orders rose 1.7% in May, their third straight monthly rise, in another sign the US economy is far from shrinking. A 1.5% increase is expected when the Census Bureau releases June data.

Personal Consumables

The PCE has been falling steadily over the past year, another bullish signal for inflation watchers. May’s reading of 3.8 year-on-year was down from over 5% earlier in the year. Core PCE, which discounts more volatile food and energy costs, has oscillated between 4.6% and 4.7% over the past three months, a less optimistic trend that has worried the Fed, although June is expected to come in at 4.2%.