Although there was some uncertainty about the monetary direction the United States Federal Reserve will take following the July FOMC meeting, the central bank approved with a 9-3 vote to maintain the interest rates at 3.50% to 3.75%.
The Federal Open Market Committee (FOMC) is the body that sets the benchmark federal funds rate, the cost at which banks lend to one another overnight. That rate ripples through the entire economy, shaping borrowing costs, the strength of the US dollar, and the appetite of investors for riskier assets. When the Fed keeps rates on hold, it signals that policymakers are weighing the balance between taming inflation and supporting employment – the two halves of its so-called dual mandate.
All eyes have turned to the incoming press conference by the new Fed Chair, Kevin Warsh, as investors anticipate which way he will lean.
“The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system,” reads the statement.
As reported earlier today, this meeting was described as the most unpredictable since the COVID-19 pandemic broke out in March 2020. The reason for this is that all meetings since then had a 99% agreement about the outcome ahead of their conclusion.
In contrast, futures markets and prediction platforms had assigned a 30%-38% probability for a rate hike for today’s meeting. Such a wide spread of expectations is unusual and tends to amplify price swings, because a large share of traders are positioned for an outcome that ultimately does not materialize.
Investors apparently had de-risked from more volatile assets like bitcoin ahead of the event today, as the asset slumped by ,000 yesterday. It rebounded to ,500 today, where it was rejected and slipped to under ,800 before the meeting.
Its minor volatility returned after the announcement, pumping above ,000 as of now. However, it’s likely that the Warsh speech will impact it even more, especially if the new Fed chair hints at what the central bank will do next – a rate hike or another pause. Historically, tighter monetary policy tends to drain liquidity from speculative markets, while a dovish tone can encourage renewed inflows into digital assets, which is why crypto traders scrutinize every word of the Fed’s guidance.
Source: CryptoPotato
