Trick or Treat: Will the latest FOMC meeting spell a trick or treat for crypto? Halloween week volatility special

It’s Halloween, and aside from the ghouls and spectre’s, another fiend is haunting the markets — that’s right, the latest FOMC (Federal Open Market Committee) meeting is now in full swing, and crypto enthusiasts, as well as TradFi investors are watching for the report to see if it’s going to be treats all round… or will we have to endure (yet another) scary trick?

The outcome of this meeting will be to decide what to do with regards to US interest rates, and that’s a big deal because whichever policy the Fed decides to pursue has implications which are likely to be much further reaching than just the US economy — and this includes crypto markets too!

So, we thought it would be interesting to provide a super-simple guide to what might happen at the meeting. Bear in mind, though, that markets tend to have a mind of their own, and this is in no way financial advice — you should always do your own research, and respond according to your own thesis.

The bull and bear scenarios

There are two likely scenarios from this meeting, and one of these will probably herald good news for crypto, and the other, well, let’s just say it will be less than good news. The long and short will be whether there’s going to be yet another rate increase — in other words, is the Fed going to add more to the interest rate for borrowing money?

At this stage, almost everyone expects a rate increase. The real question is, considering the already bloated money supply, and last month's shock figures showing that previous rate hikes had little (or, more accurately zero) impact on inflation, what will the Fed do?

The first possibility is a 50bp (basis point) interest rate increase — half of 1 percent (100 basis points of course equals a 1% raise).

The second is a minimum 75 bp hike…we say minimum because the Fed could decide to go full Hawk, and opt for a full basis point rise.

It does look likely that interest rates will increase, and that means it’s going to be more expensive to borrow money, so spending, building and investing becomes less attractive. The upside for savers is an increase in interest on your bank deposits or savings — and this means less liquidity in the global markets.

Of course, higher interest rates combined with it being more expensive to spend money is usually a negative for crypto markets which thrive on liquidity and lots of movement, and for the most part, crypto holders will be hoping for a lower basis point hike.

However, many are arguing that the smaller 50bp increase is already priced in, largely thanks to the Fed’s previous comments about a further 1.25bp raise by the end of the year. This makes a 75bp (or potentially an even more aggressive increase) more likely, and this could result in further sell-offs

However, the less aggressive 50bp hike could be on the Fed’s radar, especially with the US Midterms right around the corner. This may possibly indicate an end to the Fed’s aggressive rate hikes (for now). If this comes to pass, it could inject some life into the cryptocurrency markets, especially as Bitcoin and Ethereum (especially ETH) certainly seem to have woken up over the last week or so.

How will I know what the FOMC decides?

There are two ways to know which way the FOMC will go. You can either be glued to your computer at exactly 6pm GMT on Wednesday 2nd November and await the release of the minutes, or you can simply just not bother — the market will very quickly react and you’ll probably get the picture based on whether Bitcoin makes a sudden move.

You might well expect some downside volatility if the Fed hikes hard, but it’s worth noting that the press conference which follows the announcement around 30 minutes later could negate some of the effects, especially if Fed chair Jerome Powell’s comments are more dovish — for example, if he says they don’t expect any further rate rises of this size in the not-too-distant future.

It’s worth taking both of these two as separate, but interlinked, data points, and it’s quite possible the worst effects of a large rate hike could end up being cancelled out with softer language coming from the Fed if they expect a significant change in inflation over the coming months.

Or, you could just ask your witchy aunt to gaze into her crystal ball and tell you what’s going to happen next… but if she’s really that good, you’d think she’d be a crypto gazillionaire by now, right?

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