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Bond Traders Raise Bets for Fed Rate Hike, Adding to BTC Pressure
The CME FedWatch Tool shows traders see a 94% chance of a 75 basis-point hike to be announced Wednesday.
By Helene Braun
Updated May 11, 2023, 3:43 p.m. Published Jun 14, 2022, 4:25 p.m.
The U.S. Federal Reserve is meeting this week to discuss a fresh inflation report that shocked the markets last week. A a 75 basis point (0.75 percentage point) hike is suddenly seen as all but certain after the Wall Street Journal reported that officials were considering a bigger increase than previously signaled.
The two-day closed-door meeting of the policy-setting Federal Open Market Committee that started Tuesday and runs through Wednesday is the Fed's third this year. The U.S. central bank has been raising its benchmark interest rate in an effort to tamp down fast-rising inflation, and by extension consumer prices.
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Up until last week, economists predicted a 50 basis point rate increase, as happened in May. But a U.S. government report Friday showed the consumer price index, which tracks inflation, rose to a new high of 8.6% instead of an expected slowdown. Now, the central bank is entertaining the possibility of accelerating its rate hikes, according to the Wall Street Journal.
As a result, Goldman Sachs (GS) changed its forecast to 75 basis points for the next rate increase. Chief Economist Jan Hatzius said that "our best guess is therefore that the [WSJ] article is a hint from the Fed leadership that a 75bp rate hike is coming.”
Similarly, the CME FedWatch Tool, which uses 30-day Fed Funds futures data, shows traders see a 94% chance of a 75 basis point hike, compared with 35% just one day ago.
The prospect of a bigger rate hike has added to price pressures in the crypto market, when bitcoin (BTC) plunged below $25,000 to a 30-month low on Monday. The largest cryptocurrency by market cap is down 4.8% over the past 24 hours.
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Japan’s Higher Rates Puts Bitcoin in the Crosshairs of a Yen Carry Unwind
A stronger yen typically coincides with de-risking across macro portfolios, and that dynamic could tighten liquidity conditions that recently helped bitcoin rebound from November’s lows.
What to know:
- The Bank of Japan is expected to raise interest rates to 0.75% at its December meeting, the highest since 1995, affecting global markets including cryptocurrencies.
- A stronger yen could lead to de-risking in macro portfolios, impacting liquidity conditions that have supported bitcoin's recent recovery.
- Governor Kazuo Ueda indicated a high probability of a rate hike, with officials prepared for further tightening if their economic outlook supports it.
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