Will central banks finally ease on rate hikes?

Update [post-FOMC meeting]

The market interpreted the Nov 2nd Fed statement as “dovish” because it specifically mentioned that “the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation.”

However, the conference turned out to be more hawkish than market expectations with the following main takeaways:

• Jerome Powell chair of the Fed said that “under-tightening is much worse than over-tightening” and the risk-reward is asymmetrical.
  
• Fed’s terminal rate is going to be higher than what was communicated at the September meeting.
  
• The labor market remains strong, even compared to data before Covid, which gives the Fed confidence.

With the FOMC meeting out of the way, incoming data are going to be key, especially the CPI data.

One day before the FOMC meeting, we released this article with our expectations below.

Will central banks finally ease on rate hikes, which have been affecting investor appetite for digital assets?

Pivot discussions are back on the table. We expect the Fed to signal a data-dependent decision of a 50 or 75bps rate hike for the December meeting. For the FOMC meeting tomorrow [Nov 2nd] we expect with almost certainty of a 75bps rate hike.

In Europe, the European Central Bank's forward guidance was interpreted by the market as dovish, saying the future rate policy decision will be a “meeting-by-meeting” approach. Though the beat in EU inflation may slow down the shift.

In Asia, the Bank of Japan (BOJ) defied expectations and continued the yield curve control. While in North America, the Bank of Canada (BOC) hiked 50bps, which is lower than the expectation.

Overall, we think that the interest rate path ultimately depends on the inflation print. If the inflation rate doesn’t come down, central banks will likely continue to be on a hawkish tone.

Crypto assets rode positive sentiments in the market and their own narratives such as the Ethereum (ETH) going deflationary and Elon Musk taking over Twitter.

Read about how the USD is affecting the appetite for BTC and crypto here.

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