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The Federal Reserve (Fed) will announce its rate decision at 2 p.m. ET today, followed by Chair Kevin Warsh’s press conference at 2:30 p.m. ET.
Traders typically assign greater weight to FOMC meetings that come with updated economic projections and a “dot plot” of interest-rate forecasts. Today’s gathering lacks both. Yet the outcome still carries outsized importance for three reasons.
Unusual uncertainty over the outcome: Markets are still assigning roughly a 35% probability of a rate increase, CME fed funds futures show. That level of indecision is rare so close to a decision. By now, traders have usually converged on a clear expectation of a hold, hike or cut. Citadel Securities, the market-making sister company to the Citadel hedge fund, is forecasting an increase. The firm argues a move would end forward guidance as a policy choice, an outcome Chair Warsh has long favored.
Bond yields are already rising: Both the 10-year and two-year Treasury yields have broken above key trendlines that defined the shallow pullback in place since 2023 (check the Daily Signal). With the breakout complete, the path of least resistance is now clearly established to the upside.
Oil price resurgence: WTI crude oil prices have climbed nearly 20% this month, while peace talks between the U.S. and Iran remain deadlocked. The combination points to the potential for a renewed increase in inflation, following the June relief, which was largely tied to the earlier oil-price selloff. This leaves the Fed with little room for dovish talk.
If the Fed does raise rates or sound hawkish, the already buoyant bond yields could rise sharply, potentially creating a headwind for risk assets, including cryptocurrencies. In contrast, a sharp rise in crypto prices may emerge if the Fed downplays inflation fears despite resurgent oil prices. Stay alert!
Read more: For analysis of today's activity in altcoins and derivatives, see Crypto Markets Today . For a comprehensive list of events this week, see CoinDesk's "Crypto Week Ahead."
The chart on the left shows swings in the U.S. 10-year yield, the benchmark borrowing cost, in candlestick format. The chart on the right represents the two-year yield, which is more sensitive to near-term interest rate expectations.
Both have topped trendlines, representing a trend of pullbacks that began nearly three years ago in October 2023.
The breakout, therefore, indicates that the temporary breather is over and the broader upswing of interest rates that began in 2021 could soon pick up pace.
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