Markets React to FOMC Meeting Minutes

The U.S. central bank is continuing its efforts to tame inflation with interest rate hikes.

Markets React to FOMC Meeting Minutes
Shutterstock cover by Mark Van Scyoc

Key Takeaways

  • The FOMC minutes from its July meeting have been released.
  • The members agreed on the necessity of keeping interest rates higher as a means of combating inflation.
  • Markets were predictably cool leading up to the news and have not fared much better since.

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Minutes for the Federal Open Market Committee’s July meeting were published today and markets have responded coolly.

Higher Rates Ahead

The U.S. central bank may raise rates yet again, according to the minutes from last month’s Federal Open Market Committee (FOMC) meeting, released today.

In July, a 0.75 percentage point hike raised rates to the 2.25% to 2.5% range. The FOMC now plans to double the rate of balance sheet shrinkage in September.

Members suggested that the pace of rate hikes and balance sheet reduction would be contingent upon market conditions and responsive to them. They further suggested that it may become necessary to adjust the rate of tightening policies in order 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 appropriate in the event that risks emerged that could impede the attainment of the Committee’s goals.”

Markets were predictably cool in the hours leading up to the release of the minutes; major cryptocurrencies and stock indices showed steady downtrends in the hours before the announcement. However, stock and crypto markets appear to have opposite responses to the news in the hours since the minutes were released. Both the Nasdaq and Dow Jones Industrial Average enjoyed brief surges immediately following their release—from 12,935 to 13,053 and from 33,988 to 34,159 respectively within the first hour. Both were short-lived, however, and they 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 on the day, respectively.

The Federal Open Market Committee is the policy arm of the Federal Reserve and is tasked with regulating monetary policy. Throughout the year, it has repeatedly raised the federal funds rate from the near-zero COVID-19 era interest rates in order to temper inflation.

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

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