According to investment banks, the Federal Reserve’s monetary interest rate tightening policy, which started in March 2022, has potentially come to an end. The Fed’s actions had quite an impact on the crypto markets. The policy is now restrictive enough to gradually meet its 2% inflation target and doesn’t require further rate hikes. However, this doesn’t mean a quick return to a zero-interest rate policy. Therefore, a surging crypto bull market of 2021-2022 may not return anytime soon.
In July, the Fed raised its benchmark rate by 25 basis points. The bank has made a total tightening of 525 basis points since March 2022. However, they remain data-dependent, possibly allowing further tightening later.
ING’s Chief International Economist, James Knightley, has reservations about whether the Fed will follow through with more rate hikes. He believes a couple more 0.2% month-on-month CPI prints will lessen the talk of a rate hike in September. July’s CPI data is expected to show steady inflation, and August’s numbers will be available before the Fed’s rate-setting meeting next month.
According to Knightley, “On balance, this [Friday’s nonfarm payrolls] report doesn’t suggest any need for the renewed impetus for the Fed hiking interest rates again in September. The Fed has signaled a desire to tighten policy more slowly and the report appears consistent with the gradual cooling of the labor market.”
How much more could interest rates rise?
Knightley believes a couple more 0.2% month-on-month CPI prints will lessen the talk of a rate hike in September. July’s CPI data is expected to show steady inflation, and August’s numbers will be available before the Fed’s rate-setting meeting next month.
Financial conditions have tightened lately due to the dollar index rising 2.6% over three weeks and the 10-year Treasury yield increasing by 40 basis points to 4.10%. Knightley believed this should allow the Fed to maintain its current stance. He stated,
“The move higher in Treasury yields and the dollar in the wake of the Fitch downgrade and the US Treasury funding announcement only adds to our conviction that the Fed won’t need to hike interest rates further. These market moves in combination with higher volatility are tightening monetary conditions and will also put up mortgage rates and corporate borrowing costs.”