Markets react to FOMC meeting minutes

Key points to remember

  • The FOMC minutes from its July meeting have been released.
  • Members agreed on the need to maintain higher interest rates to fight inflation.
  • Predictably, markets were quiet before the news broke and haven’t fared much better since.

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Minutes from the Federal Open Market Committee’s July meeting were released today and the markets responded coolly.

Higher rates to come

The US central bank could raise rates further, according to minutes from last month’s Federal Open Market Committee (FOMC) meeting, released today.

In July, a 0.75 percentage point rise pushed rates up to between 2.25% and 2.5%. The FOMC now expects to double the rate of balance sheet contraction in September.

Members suggested that the pace of rate hikes and balance sheet reduction would depend on and respond to market conditions. They further suggested that it might become necessary to adjust the pace of tightening policies in order to assess their real impact on inflation. The minutes read as follows:

“Members agreed that in assessing the appropriate monetary policy stance, they would continue to monitor the implications of incoming information on the economic outlook and stand ready to adjust the monetary policy stance. , if necessary, in the event that risks emerge, could hinder the achievement of the Committee’s objectives.

As expected, markets were quiet in the hours leading up to the release of the minutes; major cryptocurrencies and stock indices showed consistent downward trends in the hours leading up to the announcement. However, the stock and crypto markets appear to have opposing responses to the news in the hours following the release of the minutes. The Nasdaq and the Dow Jones Industrial Average both saw brief gains immediately after the release, rising from 12,935 to 13,053 and 33,988 to 34,159 respectively in the first hour. However, both were short-lived and they are now trading at pre-announcement levels.

Cryptocurrencies, on the other hand, suffered an immediate but modest hit. Bitcoin and Ethereum both continued their slight decline following the announcement. They suffered 2.5% and 2% losses respectively on the day.

The Federal Open Market Committee is the policy arm of the Federal Reserve and is responsible for regulating monetary policy. Throughout the year, it repeatedly raised the federal funds rate from near-zero COVID-19-era interest rates to temper inflation.

Disclosure: At the time of writing this article, the author of this article owned BTC, ETH, and other cryptocurrencies.

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