Fed minutes from the November 2022 Federal Open Markets Committee meeting show that most Fed officials see a softening of rate hikes anytime soon.
However, some officials noted that the terminal rate, ie the rate at which inflation is expected to reach the Fed’s target of around 2%, was higher than previously expected.
Fed minutes cause major indexes and crypto to rally
After the minutes were released, the S&P 500 climbed up 0.4%. Treasury yields fell and the Dow Jones Industrial Average rose 0.2%. The Nasdaq climbed 0.7%.
“There is nothing surprising given the minutes, with officials suggesting that a true slowing of growth would allow the Fed to better assess progress toward its goals,” said Michael Reinking of NYSE Markets. Strategist.
Bitcoin responded positively over the past 24 hours, rising nearly 3% to nearly $16,700, while Ethereum gained 4.75% to $1,177.52.
Top-10 memecoin Doge is up 4.8% to $0.082, while BNB is up 13.2%.
Although Fed minutes are generally out of date, as stock markets have already absorbed the outcome of the previous meeting, they reveal the Fed’s outlook on the US economy and provide insight into the bank’s future actions.
Fed officials decry uncertain ‘lag’ in economic response
The minutes come on the back of US employment data released on November 19, 2022, which revealed signs of a slowdown in hiring. The week ending November 19, 2022 saw 240,000 jobless claims, higher than the forecast of 225,000. This comes as tech and crypto-related layoffs flood the news, stabilizing the balance between job supply and demand.
The core consumer price index, which was lower month-on-month in October 2022 as compared to September 2022, also showed signs of inflation cooling down. However, the participants of the meeting still think it is too high and forecast that lower-than-expected GDP growth will help balance supply and demand.
“With inflation remaining very high and showing few signs of abating, participants observed that a period of downward trending real GDP growth would bring aggregate supply and aggregate demand into better balance, reduce inflationary pressures and Establishing the platform will be helpful for the sustained achievement of the Committee’s objectives of maximum employment and price stability,” the report reads.
The committee also acknowledged that predicting the lag between Fed action and economic response is still challenging, despite signs that the Fed’s interest rate hike policy is affecting prices.
Fed Minutes Rolls Analyst
Technical analyst Sven Henrich pointed to the glaring omission of any reference to a 2023 recession in the Fed minutes, calling the organization dishonest.
Indeed, increasing negative spreads in Treasury yields have been a predictor of past recessions. The recession may come in the first quarter of 2023, but it may be made official only in the second or third quarter. Earlier this month, the difference between the 10Y and 3M yields was around -0.4%.
“A recession looks more and more likely for the year ahead and if the Fed reacts accordingly [slower hikes]A recession could be short and shallow,” said Jeffrey Roach of LPL Financial.
Despite the recent rise in the price of bitcoin, open interest on the CME’s bitcoin futures contracts is rising as Wall Street is betting on a decline in the price of bitcoin.
Some analysts believe that the $10,000 mark will be touched before the end of 2022. At press time, the world’s largest crypto had given up earlier gains, and is down 0.5% below $16,500.
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