Traders price in seven Federal Reserve rate hikes for 2022 as bitcoin breakout eludes them

On Wednesday, the Fed is expected to raise rates by 25 basis points, the first hike since 2018.

bitcoin chart
bitcoin chart

Bitcoin fell and US stock futures fell as interest rate derivative traders expect the US Federal Reserve (Fed) to increase rates seven times this year, with the tightening cycle peaking at a higher level than previously predicted.
According to CoinDesk statistics, the top cryptocurrency traded 3% down on the day at $38,300 during the European session, after almost testing the $40,000 barrier late Monday.
Futures on the tech-heavy Nasdaq 100 index fell 0.5 percent, indicating that risk aversion remains high. On Monday, the index slid 2%, behind the S&P 500 and Dow Jones, as investors shifted money from growth to value firms ahead of the Fed’s rate rise on Wednesday.

The Fed funds rate, or the benchmark interest rate, was 1.85 percent following the December meeting, according to overnight index swaps on Monday. An overnight index swap is a contract in which a fixed rate is exchanged for a pre-determined public index of a daily overnight reference rate.
In other words, with the present effective Fed funds rate of 0.08 percent, traders anticipated 175 basis point tightening in 2022. This equates to seven quarter-point (25-basis-point) rate increases. Following Russia’s invasion of Ukraine on February 24, markets had priced in two of the seven rate rises, leaving five on the table.

The renewed hawkish pricing corresponds with the outlook of investment banking behemoth Goldman Sachs. It alludes to grim near-term prospects for risk assets, including bitcoin, as traders expect interest rates to peak around 2.57 percent in the second half of 2023 — up 50 basis points in one week and 100 basis points this year, according to Reuters.
According to Marc Chandler, chief market strategist at Bannockburn Global Forex, the Fed is likely to lift its prediction for the so-called terminal or peak interest rate to 3% from 2.5 percent in December.
The Fed is largely expected to begin the tightening cycle with a 25 basis point rate raise on Wednesday.

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