Casey Wagner

<div id="highlights-block_62e180d7de74f" class="highlights">
 <ul>
 <li>The markets had largely priced the change in, analysts say, but persistent inflation could move cryptos to the red</li>
 <li>The central bank also opted to raise rates 75 basis points in June</li>
 </ul>
 
</div>



The Federal Reserve doubled down on its newfound quantitative tightening policy making Wednesday, bumping interest rate by three-quarters of a percentage point.&nbsp;



The US regulator cited continued upward pressure on inflation and robust job growth. The move marks the central bank’s fourth consecutive rate increase, a strategy it hopes will curb the highest inflation in more than four decades.&nbsp;



Overall economic activity appears to have slowed a bit, Fed officials wrote in a statement released at the end of their two-day policy meeting, pointing to reduced spending and business production statistics.&nbsp;



Job gains have been robust in recent months, and unemployment has remained low, the <a href="https://www.federalreserve.gov/monetarypolicy/files/monetary20220727a1.pdf" target="_blank" rel="noreferrer noopener">statement</a> noted, but the war in Ukraine and ongoing supply chain issues have contributed to persistent higher prices. 



In June, when the central bank also opted to raise rates 75 basis points, Fed Chair Jerome Powell called the move “<a href="https://cms.blockworks.co/powell-calls-feds-0-75-rate-increase-unusually-large-warns-of-slowing-economy/" target="_blank" rel="noreferrer noopener">unusually large</a>,” but if current conditions persist, higher increases could become the norm. 



“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the statement said. “The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”&nbsp;



Crypto markets reacted well to the news, which analysts say was mostly priced in. Bitcoin and ether gained 1.6% and 2.3%, respectively. The S&amp;P 500 and tech-heavy Nasdaq were largely unchanged — but remained in the green by mid afternoon trading.


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#8623C9&#8243; assets=&#8221;BTC-USD,ETH-USD,^GSPC,^IXIC&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;5d&#8221; chart_interval=&#8221;1h&#8221;]



“This 75 [basis point] rate hike was previously telegraphed and came as expected, further stoking fears of a slower, longer hike cycle rather than the quicker one preferred by many,” said Steven McClurg, co-founder and chief investment officer at digital asset fund manager Valkyrie Investments. “Most traders are likely to take risk off the table as they head off on vacation for the rest of the summer, and the markets will slowly grind down on thin volumes with a lack of upside catalysts though at least the next FOMC meeting in September.”



It’s hard to predict which market moves might come next, other analysts say.&nbsp;



“We could see a relief rally because the market has priced in such a move already,” Anthony Denier, CEO of trading platform Webull, said. “But, it could also fall if investors believe the Fed still isn&#8217;t getting inflation under control and this could mean more big hikes in the near future.”



This is a developing story.



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Fed Raises Rates 75 Basis Points, Again

<div id="highlights-block_620e8e6d2c982" class="highlights">
 <ul>
 <li>Unemployment numbers continue to improve, suggesting that a March rate hike is looking more likely</li>
 <li>Bitcoin and other risk assets largely have hikes priced in already, analysts say</li>
 </ul>
 
</div>



US jobless claims rose last week after three straight weeks of declines. Unemployment still remains at a historic low, however, a key metric that may mean hawkish action from the Federal Reserve is to come.



Initial jobless claims rose to a seasonally adjusted 248,000 last week, up from 225,000 the prior week, according to <a href="https://www.dol.gov/ui/data.pdf" target="_blank" rel="noreferrer noopener">data</a> from the Department of Labor. Continuing claims, which provide insight into the number of citizens receiving state unemployment benefits, declined to 1.59 million, down from 1.62 million the week prior.



The largely positive report comes after Federal Reserve Chair Jerome Powell indicated that maximum employment is a key goal that must be met before the Fed will raise interest rates or taper asset purchases.



“In their discussion of current economic conditions, participants noted that indicators of economic activity and employment had continued to strengthen,” <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20220126.pdf" target="_blank" rel="noreferrer noopener">minutes</a> from the Fed’s January meeting read. 



While the employment situation may be looking up, inflation continues to rise at the fastest rate in <a href="https://cms.blockworks.co/analysts-weigh-likelihood-of-march-rate-hikes-as-cpi-disappoints-again/" target="_blank" rel="noreferrer noopener">40 years</a>, leading analysts to believe rate hikes are coming in March.



“​​The central bank will kick off its tightening cycle next month and a number of consecutive hikes will likely follow,” Craig Erlam, senior market analyst at OANDA, wrote in a note Thursday. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Whether they&#8217;ll kick things off with a 50 basis point hike isn&#8217;t yet clear and will depend on the data in the coming weeks, but there doesn&#8217;t appear to be consensus for it yet, despite markets pricing in a fair chance of it happening.”</blockquote>



Fed fund futures show a <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">69.2% probability</a> that the Fed will raise rates between 25 to 50 basis points at its March 15-16 meeting, which is 19 trading days away.



The prospect of higher rates has put a damper on risk assets, including bitcoin and other cryptocurrencies, in recent months. Bitcoin fell about 2% Thursday an hour after the release of the jobs report, but analysts remain optimistic.



“[Bitcoin] has shown real resilience in recent weeks, but is struggling to generate the momentum needed to take the next step,” Erlam said. “The uncertainty in the markets probably isn&#8217;t helping, although it hasn&#8217;t held it back recently, a break above here could be a very bullish development for bitcoin.”



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Jobless Data Makes March Rate Hike More Likely

<div id="highlights-block_620555b1b30cc" class="highlights">
 <ul>
 <li>US consumer prices are still on the rise, with January showing the largest year-on-year increase since 1982</li>
 <li>Inflation woes have already been priced into the market, analysts say, but rate hike speculation continues</li>
 </ul>
 
</div>



US consumer prices were on the rise again in January, once again showing the biggest annual inflation increase in 40 years. In the 12 months through January, the consumer price index rose 7.6%, up from 7% in December, marking the largest year-on-year increase since 1982, according to the latest index <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank" rel="noreferrer noopener">report</a>.



Bitcoin and ether lost 3.6% and 5.2%, respectively, immediately following the release of the report before paring gains later in the morning Thursday. Equities also experienced a slight dip at the open but mostly rose later in the trading session.



“US stocks recovered most of the inflation-driven losses as investors anticipate that pricing pressures could be peaking just before the Federal Reserve’s March policy meeting,” Edward Moya, senior market analyst at OANDA, said. “Two of the biggest inflationary pressures have been surging shelter prices and new vehicles, both of which seem poised to be improving next quarter.”



Economists expected a 7.3% increase in January. This is the eighth time in the last 10 months that economists have underestimated the change in inflation.



“[The CPI reading is] definitely higher than expectations and opens up the possibility of accelerating inflation — which is really bad,” said Joseph Wang, a former senior trader on the Fed’s open markets desk.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“With a few Fed presidents already on record against a 50 basis point hike, I don&#8217;t think it&#8217;s likely.”</blockquote>



Last week, Wang told Blockworks he doesn’t expect such a move in March, but aggressive rate hikes later in the year remains a possibility.



“I suspect that they’re going to be very aggressive — maybe one hike, every meeting, maybe even 50 basis points at one meeting in the future,” Wang said.



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="European Bonds Throw A Tantrum | Joseph Wang" width="1024" height="576" src="https://www.youtube.com/embed/nzj133KjX-s?start=1958&#038;feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



On Thursday, Federal Reserve Bank of St. Louis President James Bullard, <a href="https://www.bloomberg.com/news/articles/2022-02-10/fed-s-bullard-backs-supersized-hike-seeks-full-point-by-july-1" target="_blank" rel="noreferrer noopener">told Bloomberg</a> that he is in favor of more rapid tightening of as much as a full percentage point by summer.



The odds of raising the target rate to 50-75 bps in March increased to 81%, following the comments, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">Fed funds futures</a>.



“The Fed has not started a rate cycle with a 50 bp increase since at least 1990,” Nicholas Colas, co-founder of DataTrek Research, wrote in a recent note. “Such a move would therefore be very unusual, but Chair Powell has repeatedly said the current environment is unlike any other in recent memory.”



Speculating when rate hikes might begin is difficult, Wang pointed out.



“The Fed hates to surprise the market, and the current futures pricing is too unclear,” said Wang. “I&#8217;d expect Fed speakers to come out in the coming days to telegraph clearly either way. They probably don&#8217;t know what to do yet, though.”



The Fed’s next Federal Open Market Committee meeting is scheduled for March 15 and 16. A summary of economic projections will also be released following the meeting.



This story was updated on Feb. 11 at 8:00 am ET, to reflect new comments by FOMC voter James Bullard.



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