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Federal Reserve Expected to Hike Interest Rates Amid Persistent Inflation
Confirmed
In Short: Exchange reserves for Ethereum have dropped as investors move funds to private wallets, yet the top altcoin continues to attract new capital amid expectations of a Federal Reserve interest rate hike.
The anticipated rate hike comes as yields on U.S. Treasurys are rising, reaching the highest level in years amid competition in the fixed income market from foreign sovereign debt and corporate debt issuance. According to the CME FedWatch tool, there is a 92.5% chance of a 25-basis-point hike versus a 7.5% probability of rates staying at their current level.
Vanguard senior economist Josh Hirt said on Friday that the Federal Reserve leaving interest rates unchanged at its September meeting could push Treasury yields higher. The CME FedWatch tool also shows a 49.7% chance of two 25-basis-point rate hikes before the end of the year to a range of 4% to 4.25%, with a 28.9% probability of three hikes to a target of 4.25% to 4.5%.
What's confirmed
- The anticipated rate hike comes as yields on U.S. Treasurys are rising, reaching the highest level in years amid competition in the fixed income market from foreign sovereign debt and corporate debt issuance. According to the CME FedWatch tool, there is a 92.5% chance of a 25-basis-point hike versus a 7.5% probability of rates staying at their current level.
- Vanguard senior economist Josh Hirt said on Friday that the Federal Reserve leaving interest rates unchanged at its September meeting could push Treasury yields higher. The CME FedWatch tool also shows a 49.7% chance of two 25-basis-point rate hikes before the end of the year to a range of 4% to 4.25%, with a 28.9% probability of three hikes to a target of 4.25% to 4.5%.
What's still developing
- Exchange Netflow data shows withdrawals from exchanges have outpaced deposits over the past five days, pushing exchange reserves down by 159K ETH during the period.
- Declining exchange reserves suggest investors are moving funds to private wallets, reducing the amount of coins available for immediate selling.
- Despite that and the market's near certainty of an interest rate hike at the next Federal Reserve (Fed) meeting, the top altcoin has continued to attract fresh capital.
- The consistent buying strength comes amid strong expectations of a rate hike in the upcoming Federal Open Market Committee (FOMC) meeting on Thursday.
- The Federal Reserve is holding a closely watched monetary policy meeting this week as the market expects the central bank to hike interest rates amid concerns about stubborn inflation.
- Wednesday's FOMC announcement will also include the so-called "dot plot" that outlines how Fed policymakers view the future path of interest rates.
- Policymakers have held interest rates steady at all five meetings held by the Federal Open Market Committee (FOMC) this year, with the benchmark federal funds rate sitting at a target range of 3.5% to 3.75%.
- The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, was up 3.7% on an annual basis in July while core PCE, which excludes volatile food and energy prices, was up 3.3%.