Markets Respond to FOMC Meeting Minutes

Markets Respond to FOMC Meeting Minutes

Key learning points

  • The FOMC minutes of the July meeting have been released.
  • Members agreed on the need to keep interest rates higher to curb inflation.
  • The markets were predictably cool leading up to the news and haven’t fared much better since then.

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The minutes of the July meeting of the Federal Open Market Committee were released today and markets have reacted coolly.

Higher rates ahead

According to the minutes of last month’s meeting of the Federal Open Market Committee (FOMC) released today, the US central bank could raise interest rates again.

In July, an increase of 0.75 percentage point raised interest rates to 2.25% to 2.5%. The FOMC now plans to double the pace of its balance sheet contraction in September.

Members suggested that the pace of interest rate hikes and balance sheet shortening would depend on and respond to market conditions. They further suggested that it might be necessary to adjust the degree of policy tightening to assess their real impact on inflation. The minutes read:

“Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as necessary. in the event that risks should arise that could hinder the achievement of the committee’s objectives.”

Markets were predictably cool in the hours leading up to the minutes’ release; major cryptocurrencies and stock indices showed steady downward trends in the hours before the announcement. However, the stock and crypto markets appear to have had opposing reactions to the news in the hours since the minutes were released. Both the Nasdaq and Dow Jones Industrial Average experienced brief gains immediately after their release – from 12,935 to 13,053 and from 33,988 to 34,159, respectively, within the first hour. However, both were short-lived and are now trading at pre-announcement levels.

Cryptocurrencies, on the other hand, took an immediate but modest hit. Bitcoin and Ethereum both continued mild downturns in the wake of the announcement. They suffered 2.5% and 2% losses respectively on the day.

The Federal Open Market Committee is the policy branch of the Federal Reserve and is charged with regulating monetary policy. Throughout the year, it has repeatedly raised Federal Funds interest rates from near-zero COVID-19 rates to dampen inflation.

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

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