Federal Reserve Meeting Just Ended – Rates Remain Unchanged

The Federal Reserve decided not to lower interest rates today, which leaves expectations for a possible rate cut in September.

Since July 2023, FOMC has maintained the federal funds rate target at its highest level in 23 years within the 5.25% to 5.5% range. With inflation slowing and the labor market stabilizing, officials are aiming for a soft landing for the U.S. economy.

Beginning in early 2022, the central bank raised interest rates to address the most severe inflation in four decades, which peaked at 9.1% in June 2022. Inflation has since decreased to around 3% annually.

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Fed Rate Cut Expectations

Interest-rate futures indicate an 88% chance of a quarter-point cut in September, and a 12% chance of a half-point cut. Bond yields have decreased significantly since spring as expectations for rate cuts have risen.

However, Powell and other officials have stated that more positive economic data is necessary before making a decision.

The federal funds rate — what banks charge each other for short-term loans — now sits in a range of 5.25% to 5.5%. Most economists polled by FactSet expect the Fed to leave that rate unchanged until its September meeting.

Japan Increases Interest Rates on the Back of the Weakening Yen

Earlier today, the Bank of Japan increased interest rates to 0.25%, causing significant volatility in equities, and the Japanese Yen. Additionally, the central bank announced plans to decrease its monthly bond purchases to approximately ¥3 trillion ($19.6 billion) by the first quarter of 2026. This move was less aggressive than analysts had anticipated.

The persistent decline of the Japanese Yen against the US dollar has compelled the central bank to implement rate hikes this year. This marks the first time in two decades that interest rates in Japan have become net positive.

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Crypto Market Volatility

Bitcoin’s price has become highly volatile, especially since it peaked at $70,000 on Monday. This volatility is expected to continue, influenced by the Fed’s decision on rate cuts and the Bitcoin options expiry on Friday. Additionally, Mt. Gox’s movement of over $3.15 billion in BTC earlier today has contributed to the current market fluctuations.

The overall crypto market is also experiencing volatility, with Ethereum hovering around $3,300. Positive flows into Ethereum ETFs today suggest a potential upward movement for ETH. Meanwhile, XRP has surged by 9%, going against the broader market trend.