As the Federal Open Market Committee (FOMC) convenes for a highly anticipated meeting today (2 pm ET), the stakes are high not just for traditional finance but also for the crypto markets, which have become increasingly sensitive to macroeconomic signals. Kurt S. Altrichter, a notable financial advisor, has provided an in-depth analysis of possible outcomes and their ramifications on X, offering a roadmap of expectations for market participants.
Altrichter points out that despite the scaling back of rate cut expectations—from six expected cuts at the start of the year to just one by year’s end—the markets have shown resilience. This is largely because investors still anticipate the next Federal Reserve move to be a cut, not an increase. For the crypto market, this has meant a precarious balance, first the market seemed unfazed by the implications, now investors seem to watch the macro environment closely again.
FOMC Preview: How Will The Crypto Market React?
Expected Scenario: In what Altrichter labels the ‘Expected Scenario,’ the FOMC could reinforce existing expectations that the next policy move would be to lower rates. He elaborates on this scenario’s likely impact: “The rally continues. Equities should welcome the Fed’s pushback on rate hikes, and while that is not a material bullish catalyst, it should support stocks,” Altrichter stated.
In this context, he anticipates a modest uptick in the S&P 500 (less than 1%), a slight drop in treasury yields (less than 10 basis points), and a minimal decrease in the dollar’s value. For the crypto market, this could translate to stable or slightly positive conditions, as the perceived risk from tightening monetary policy diminishes.
Hawkish Scenario: A more concerning outcome for market bulls would be a ‘Hawkish Scenario,’ where the Fed indicates potential rate hikes in response to inflation concerns. Altrichter warns: “If J-Powell upgrades the statement about inflation or says rate hikes are still being considered, SPX would drop hard by more than 1%, and all 11 SPDRs should be lower, with defensive stocks going down less (outperforming).”
This reaction could lead to a spike in treasury yields (10-20 basis points) and strengthen the dollar significantly (possibly breaching the 107 mark). Such an environment could be detrimental to cryptocurrencies, as a hike in rates typically fosters a risk-off sentiment, leading investors to pull back from high-risk assets like digital currencies.
Dovish Scenario: Conversely, the ‘Dovish Scenario’ might see the Fed dismissing recent inflation spikes as transitory, focusing instead on either holding rates steady or preparing for cuts. Altrichter describes this outcome optimistically: “No change in inflation language. Powell still focused on 2 policy paths (cut or hold) and dismissed the recent spike in inflation as transitory (I doubt he will use this word).”
He predicts a robust rally in the S&P 500, potentially moving above 5,200, with significant gains across tech and growth stocks. For the crypto market, this could mean a surge in investment as lower interest rates make non-yielding assets more attractive.
Given the highly reactive nature of cryptocurrencies to macroeconomic indicators, these assets are particularly sensitive to the Fed’s tone and decision-making. A dovish turn by the Fed could invigorate the crypto markets, leading to rallies as seen historically during periods of low interest rates. However, a hawkish stance might exacerbate the bearish trends, pushing cryptocurrencies lower as investors seek safety in more traditional assets.
Altrichter concludes with a strong statement on the importance of the upcoming meeting: “For the bounce to continue, the FOMC needs to reinforce that the next move in rates will unequivocally be a cut.”
On the short-term effects, macro analyst Ted (@tedtalksmacro) agreed with Altrichter. He remarked, “Any potential hawkishness has already been priced in, and we re-run the March FOMC playbook IMO.” This could mean the crypto market sees a slight bounce upwards, and then trends lower, potentially making new lows.
A drastic change from the beginning of the year.
The market sees only one 25bps cut by December, however at the previous meeting in March, the Fed told us that there will be 3 cuts – via the updated dot plot.
Any potential hawkishness has already been priced in, and we re-run… pic.twitter.com/Ga27iX3aM2
— ted (@tedtalksmacro) April 30, 2024
At press time, Bitcoin traded at $59,953.
Featured image from Shutterstock, chart from TradingView.com
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