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Crypto Prices Consolidate Ahead of Powell – What to Expect

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The Federal Open Market Committee (FOMC) meeting is scheduled for November 1-2. The market expects the Federal Reserve to raise interest rates for the fourth consecutive time by 75 basis points. The hawkish stance taken by the Fed this year has caused a plunge in crypto prices, and this week’s announcement could also trigger a bearish sentiment.

Crypto consolidates as market ahead of FOMC meeting

The core inflation readings in the US have remained higher, and the Fed believes that monetary tightening policies will ease these inflation levels. Most market analysts believe this week’s meeting will yield another 75 basis points hike in interest rates.

The Fed has aggressively raised interest rates this year to tame inflation. Investors have been shying away from investing in risk assets such as cryptocurrencies. Bitcoin has dropped by nearly two-thirds since creating an all-time high of over $69,000 in November last year.

Last week, Bitcoin rallied past $20K for the first time in weeks. However, the coin is having a hard time pushing to $21K. The trend could have paused as traders waited to see the results of the decision made by the Fed.

While a hike in interest rates is expected, the announcement will likely plunge Bitcoin below $20K, and the global cryptocurrency market cap could drop below $1 trillion. For most of this year, Bitcoin’s correlation with the stock market has increased, and as stocks drop due to the hike, Bitcoin will likely see a similar performance.

Fed will slow interest rate hikes

The financial markets seem to agree that this week’s meeting will result in a 75 basis point interest rate hike. The markets also believe that the Fed will slow down on the consecutive interest rate decisions, which could be a positive sign for risk assets.

According to a report by Bloomberg, Goldman Sachs analysts expect the Fed will raise interest rates by as high as 5% in March 2023, taking into account this week’s hike. The meeting could shed light on the Fed’s sentiments towards the economy and whether it will slow the rate hikes.

The Goldman Sachs economists said the rates could increase by 50 basis points in December and 25 basis points in February and March next year. While speaking to Bloomberg, the analysts said that the Fed could also raise the rates past February to cool the economy after the tightening ends and the need to avoid easing financial conditions prematurely.

It is important to note that a decision to hike interest rates is bullish for the US dollar. The USD is usually inversely correlated with Bitcoin and other cryptocurrencies. Therefore, we could see the crypto markets pulling back in the short term. However, if the Fed eases tightening policies, it could prompt more people to buy Bitcoin as demand for risk assets climbs again.

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