• The US Federal Reserve’s latest meeting minutes indicate that more interest rate hikes are coming.
• Financial markets had initially been expecting just two more 25 bps rate hikes, but this month’s hot US data has forced them to up their bets.
• Money markets now imply a 27% probability that the Fed might raise interest rates by 50 bps in March and peak in the 5.25-5.50% range in June.
Latest Fed Meeting Minutes
The recently released minutes of the 1st of February meeting of the Federal Open Market Committee (FOMC) indicated that more interest rate hikes are coming from the US Federal Reserve. The FOMC, comprised of an assortment of Federal Reserve Governors and regional Fed Presidents, raised interest rates 25 bps to a 4.50-4.75% target range at their meeting earlier this month.
Financial Markets Expectations
At the time, most analysts were forecasting just two more 25 bps interest hikes – one at the February meeting, which was delivered, and then a final one at the March meeting. Some market participants were even betting that the 25 bps rate hike in February might be the Fed’s last this cycle with money market implied probability of no rate hike in March being around 20%.
Hot US Data & Increased Bets
This month’s string of stronger/hotter-than-expected US data releases has triggered a big shift in the market’s expectations resulting in money markets now implying a 27% probability that the Fed might raise interest rates by 50 bps (to 5.25-5.50%) next month and peaking in June at 5.25-5.5%.
Upside Inflation Risks & Policy Outlook
The meeting minutes said that FOMC members expect further increases to interest rates will be necessary to ensure that inflation comes sustainably back to 2% target with „upside risks to inflation outlook“ as key factor shaping policy outlook while few officials warning about „insufficiently restrictive“ stance could hamper progress on bringing down inflation .
In conclusion, it is clear from these recent developments that there is an increasing likelihood for more upcoming interest rate hikes from US Federal Reserve over medium term which could prove to be major headwinds for crypto market investors .