US FED Will Increase The Interest Rates, What Will Happen To Crypto?

The US FED will increase the interest rates on Wednesday this week and the crypto market participants will be watching closely for clues about how aggressive the new rate hike will get so let’s have a closer look at today’s latest cryptocurrency news.

Judging from the CME’s FedWatch Tool, the traders are expecting the FED to raise the interest rates by 75 basis points which is a 77.5% probability of the outcome. However, this also means that the market prices in 22.5% probability that the FED will boost the rates by 100 base points which will likely be the biggest increase of the modern Fed era. The possibility of the 100-basis point hike came into focus recently beucase of the high inflation numbers in the US. The data shows that inflation reached 9.1% which is more than analysts expected and up from 8.6% a month earlier.

The biggest inflation report lead to a relief rally for the market with BTC having increased to 14% since the biggest inflation report came on a few weeks ago. According to the Singapore-based trading company, QCP capital, the 100-basis point hike by the FED is not going to happen given the inflation is showing signs of peaking but the company says that the mini rally can be expected as the market realizes this.  The company wrote in an update:

“Since the high [inflation] print, the market has been decisively pricing out the probability of a 100 bps hike in the July [Fed meeting]. Currently, a 20% chance of 100 bps is still being priced in but our view is that 75 bps is the most the Fed will do. So expect another boost as 100 bps gets completely priced out.”

The US Fed will increase the interest rates but the Wall Street Journal reported that the so-called overnight index swaps indicate an expectation on the market that the FED will raise rates until the end of the year before turning around and starting to cut them by June next year. The same data shows that the FED will raise the interest rates by 75 basis points and the rate is expected to be at around 3.3% by the end of the year. The predicted turn-around in the FED policy has marveled the investors and the report from senior portfolio manager Jim Caron says:

“From an expectation standpoint it’s not been at an extreme like this.”