Possible Outcomes of FOMC Meeting, How Would Bitcoin And Crypto Market React?

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As a researcher with a background in economics and finance, I’ve closely followed the developments in the cryptocurrency market and the Federal Reserve’s monetary policy. Based on my analysis of the available data and market sentiment, I believe that the FOMC meeting could have a significant impact on both Bitcoin and altcoins.

The cryptocurrency market, including Bitcoin, has experienced significant selling pressure in the run-up to the Federal Open Market Committee (FOMC) meeting, causing a drop in Bitcoin’s price by over 5% and hovering around the $60,000 mark. The risk-averse sentiment has intensified ahead of the event.

FOMC Meeting and Its Possible Outcomes

There’s been a notable change in market predictions for interest rate reductions this year. At the start of 2023, there were speculations about an ideal situation with as many as six rate cuts. But now, the prevailing view is that just one rate reduction is expected by the end of the year.

As a researcher studying the economic trends on Wall Street, I’ve noticed that there’s ongoing debate among some of the industry’s largest banking institutions regarding the timing of the Federal Reserve’s first-rate cuts. According to CNN’s report, JPMorgan and Goldman Sachs are anticipating an initial reduction in interest rates as early as July. Conversely, Wells Fargo is more cautious and predicts that such a cut might not occur until September.

Alternatively, Bank of America’s predictions indicate that the initial interest rate reduction may not occur until December. Notably, certain Federal Reserve officials have also contemplated the possibility of raising rates rather than cutting them, introducing more intricacy into the developing economic situation.

As a market analyst, I anticipate that the robust inflation data may compel the Federal Reserve to maintain higher interest rates for an extended period. Nevertheless, there’s a concern among some experts that this decision could pave the way for stagflation – a situation where economic growth stalls while inflation persists. Financial advisor Kurt S. Altrichter shares my perspective, noting that the Fed currently faces two potential paths: either to maintain the current interest rates or to lower them. If the Fed decides against adjusting the interest rates, it’s crucial to recognize that such a move could have implications for economic growth.

“The rally continues. Equities should welcome the Fed’s pushback on rate hikes, and while that is not a material bullish catalyst, it should support stocks. Value and cyclical should lead stocks higher and I would expect the $SPX to rise less than 1%. Treasury yields should drop less than 10 basis points. The dollar should be relatively muted or drop slightly. Commodities should see a small bounce”.

If the Federal Reserve adopts a more accommodative stance (becomes Dovish), Altrichter predicts that the S&P 500 could gain an additional 1% and surpass 5,200. Furthermore, he anticipates that the yield on the 10-year Treasury note will decline to around 5.4%.

LIKELY MARKET REACTION: DOVISH SCENARIO

If Jerome Powell, the Federal Reserve chairman, maintains a firm stance during his speech or even hints at keeping interest rates unchanged or reducing them further, there is a strong likelihood of a significant rebound in the S&P 500 index. In this scenario, anticipate that September’s rate cut expectations will surge, driving up risk assets and causing yields to decrease.

The $SPX would…

— Kurt S. Altrichter, CRPS® (@kurtsaltrichter) April 30, 2024

How Will Bitcoin and Altcoins React?

Before the FOMC meeting, the cryptocurrency market faced significant selling pressure, leading to a substantial drop in prices. This trend was particularly felt in the altcoin sector, as investors grew anxious over the possibility of the Federal Reserve continuing with its policy of keeping interest rates elevated.

With anxiety heightening in the financial markets in anticipation of the Federal Reserve’s upcoming interest rate decision the following day, the dollar index experienced a significant increase. This surge was indicative of investors seeking refuge in safe-haven assets amidst the uncertainty. The crypto market felt the brunt of these developments, as the market remained in a state of flux, with direction unclear until the Fed’s announcement had been made.

Even if pressing issues continue in the short term due to high interest rates and ongoing inflation, it doesn’t automatically mean a negative outlook for the crypto market in the future. In contrast, stocks, bonds, and real estate could face challenges, whereas assets such as gold, silver, oil, and Bitcoin are expected to generate substantial gains.

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2024-05-01 09:38