As the Federal Open Market Committee (FOMC) meets today (2 p.m. ET), the stakes are high not only for traditional finance but also for crypto markets, which have become increasingly sensitive to macroeconomic signals. Kurt S. Altrichter, a renowned financial advisor, provided an in-depth analysis of possible outcomes and their ramifications on X, providing a roadmap of market participants’ expectations.
Altrichter points out that despite the reduction in rate cut expectations – from six expected cuts at the start of the year to just one by the end of the year – markets have shown resilience. This is largely because investors still expect the Federal Reserve’s next move to be a cut, not an increase. For the crypto market, this means a precarious balance. At first the market seemed unfazed by the implications, now investors appear to be monitoring things. macro environment once again up close.
FOMC Preview: How Will the Crypto Market React?
Expected scenario: In what Altrichter calls the “expected scenario,” the FOMC could reinforce existing expectations that the next policy action would be a rate cut. He details the likely impact of this scenario: “The recovery continues. Stocks should welcome the Fed’s response on rate hikes, and while it may not be a significant upside catalyst, it should support stocks,” Altrichter said.
In this context, he anticipates a slight rise in the S&P 500 (less than 1%), a slight decline in Treasury yields (less than 10 basis points) and a minimal decline in the value of the dollar. For the crypto market, this could translate into stable or slightly positive conditions, as the perceived risk from tightening monetary policy diminishes.
Warmongering scenario: A more worrying outcome for market bulls would be a “Hawk scenario,” in which the Fed signals potential rate hikes in response to inflation concerns. Altrichter warns: “If J-Powell improves his statement on inflation or says rate hikes are still on the cards, the SPX would fall sharply by more than 1%, and the 11 SPDR should be lower, with defensive stocks falling less (outperforming). »
This reaction could lead to a rise in Treasury yields (10 to 20 basis points) and a significant strengthening of the dollar (possibly beyond the 107 mark). Such an environment could be detrimental to cryptocurrencies, as a rate increase generally promotes a sense of risk aversion, leading investors to withdraw from high-risk assets like digital currencies.
Conciliating scenario: Conversely, the “dovish scenario” could see the Fed view recent inflation increases as transitory, focusing instead on keeping rates stable or preparing for cuts. Altrichter describes this result optimistically: “No change in the language of inflation. Powell has always focused on two policy paths (reduce or maintain) and has dismissed the recent rise in inflation as transitory (I doubt he would use that word). »
He predicts a strong rally in the S&P 500, potentially above 5,200, with significant gains in technology and growth stocks. For the crypto market, this could mean increased investment as lower interest rates make non-earning assets more attractive.
Given the highly reactive nature of cryptocurrencies to macroeconomic indicators, these assets are particularly sensitive to the tone and decisions of the Fed. A accommodating turn by the Fed could reinvigorate crypto markets, leading to rallies as seen historically during periods of low interest rates. However, a hawkish stance could exacerbate bearish trends, pushing cryptocurrencies lower as investors seek safety in more traditional assets.
Altrichter concludes with a strong statement on the importance of the next meeting: “For the rebound to continue, the FOMC must reaffirm that the next move in rates will unequivocally be a decline. »
Regarding short-term effects, macroeconomic analyst Ted (@tedtalksmacro) agreed with Altrichter. He noted: “Any potential hawkishness has already been accounted for, and we are re-running the March FOMC playbook, IMO. » This could mean that the crypto market experiences a slight upward rebound and then a downward trend, potentially hitting new lows.
A radical change from the start of the year.
The market is only pricing in one 25 basis point cut between now and December, but at the previous meeting in March, the Fed told us there would be three cuts – via the updated dot plot.
Any potential hawkishness has already been accounted for, and we are re-executing… pic.twitter.com/Ga27iX3aM2
– Ted (@tedtalksmacro) April 30, 2024
At press time, Bitcoin was trading at $59,953.
Featured image from Shutterstock, chart from TradingView.com
