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31 Jan 2023

Wednesday FOMC Primer

A busy macro week lies ahead, with interest rate decisions from the ECB, the Bank of England, and the Federal Reserve. Fed funds hikes have been a constant source of market volatility throughout 2022, and traders should brace for a volatile FOMC Wednesday.
60min
Source: Tradingview *Dates included: 2021: Apr 28th, Jun 16th, Jul 28th, Sep 22nd, Nov 3rd, Dec 12th. 2022: Jan 26th, Mar 16th, May 4th, Jun 15th, Jul 27th, Sep 21st, Nov 2nd, Dec 14th
Deflationary economic data in January has caused optimism in the market, but a pivot reigns unlikely in the near term. Earlier in January, U.S. CPI data came in at -0.1% MoM, while the core CPI came in at 0.3%. Further evidence of receding inflation came in during the PPI release of -0.5%, well below expectations. Currently, the market is unanimously aligned in expecting a 25bps FOMC hike and is more uncertain about the dot plot onwards. Due to a relatively strong market recovery, Chair Powell may take the advantage to maintain hawkish restrictive undertones, emphasizing the importance of incoming economic data. The chart below depicts the current implied odds for the FED’s fund rate onwards. The market expects a 25bps hike on Wednesday and another 25bps hike to 475bps on March 22. The market is more conflicted on the trajectory onwards following March. Currently, zero adjustments during the May 3 and June 14 FOMC meetings are priced as the most likely outcome, but a further hike of 25bps remains within the realm of possibility.
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Preview
Source: CME Group
FOMC volatility trending lowerWe observe that BTC’s price action during the two most recent FOMC press conferences has been far less volatile than the norm during the most aggressive hiking cycle from March to September 2022. The chart below illustrates the rolling minutely volatility of BTC amid prior FOMC meetings. The black line highlights that BTC’s reaction to the November and December FOMC press conferences was far softer than during the preceding FOMC press conferences. This could suggest that the trend of massive FOMC-induced volatility in BTC is receding.
60min
Preview
Source: Tradingview *Dates included: 2021: Apr 28th, Jun 16th, Jul 28th, Sep 22nd, Nov 3rd, Dec 12th. 2022: Jan 26th, Mar 16th, May 4th, Jun 15th, Jul 27th, Sep 21st, Nov 2nd, Dec 14th
Nonetheless, the FED’s path remains unclear, with conflicting views on the dot plot. Jerome Powell’s guidance is likely to offer volatile conditions, and traders should expect a volatile Wednesday and FED’s forecast onwards to be important to the near-term directional price path.
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