- The FOMC meeting will be happening soon, and there is a high probability that the Fed rate cuts may pause to await the current economic update.
- Crypto traders are braced for volatility as the Fed decision looms; they are unsure of the expectations, and this has kept the market in a wait-and-see mode.
- According to CME FedWatch predictions, there is a 97% chance of a Fed pause, citing both economic stability and inflation risks.
Based on expectations, the Fed will not lower interest rates in the upcoming FOMC meeting on Thursday. This is after having lowered rates three times consecutively. FED Chair Jerome Powell is being mindful of potential risks to economic growth and inflation.
The Fed’s Expected Pause: A Wait-and-See Approach
The Federal Reserve faces a fine line between maintaining stability and managing upward pressure on labor costs. The odds are currently in favor of leaving the Fed Funds Rate at the current target rate between 3-3.25%.
This is a departure from the more aggressive monetary policy approach of reducing rates over the past several months. The latest data shows that inflation has settled at an annualized rate of 2.7%, which lies within the Fed’s target for inflation.
Source CME FedWatch Tool
The core Consumer Price Index (CPI), which excludes food and energy prices, has also narrowed to 2.6%.
However, there are still many concerns regarding inflation and the potential for upward pressure coming from a shortage of qualified workers. If the Fed were to act accordingly, we expect to see the Fed keep rates unchanged.
So as to ensure the immediate future action is based upon the additional economic data it receives.
Many analysts believe that the Fed’s decision to halt rate cuts was wise. Because it will allow the Fed to determine what the impact of prior monetary activities has had on economic performance.
While inflation appears to be settling down, the need to reduce rates is no longer urgent. Therefore, the Fed will continue to exercise caution on the steps it will take going forward.
Impact of the Fed’s Rate Pause on the Crypto Market
Interest Rate Decisions Will Impact The Crypto Market, particularly capital flows into and out of the crypto market. Digital assets such as Bitcoin, Ether, and XRP have experienced substantial price swings in recent weeks.
primarily due to transitory responses by investors in the crypto market to macroeconomic changes. Recently, speculation regarding potential interest rate pauses has increased uncertainty among participants in the cryptocurrency space.
Additionally, some of the largest and most well-known digital assets have experienced losses despite relatively stable macroeconomic conditions.
As an example, on Nov. 30, after the FOMC, Bitcoin experienced a drop of approximately $9100. This is an indication that they continue to be susceptible to volatility associated with macroeconomic conditions.
If the Fed holds interest rates steady during this meeting, then that should provide stability. However, the Fed has not provided clarity regarding the direction of future interest rate increases.
As such, the cryptocurrency investor remains sensitive to the unanticipated change in inflation and economic growth.
Market Reaction Ahead of FOMC
Bitcoin is holding steady at around $87.8 K as Ethereum and other top coins are experiencing dips.
Source CoinGecko
The total market cap is up by 0.6% intraday. This signals cautious optimism, due to the current volatility persisting. This suggests that traders are awaiting the Fed’s decision on before making major moves.