Recaps · FOMC · 4 May 2022, 19:00 UK

A relief rally with a short life

The half-point hike was expected. What moved markets was one answer in the press conference: a 75 basis point hike, Powell said, was not something the committee was actively considering. Stocks had their best day in two years and Bitcoin rose. Within a day the rally had reversed, and within a week Bitcoin was down nearly a quarter.

Decision: Wednesday 4 May 2022, 19:00 UK
Rate: +50bp to 0.75% to 1.00%
Context: Biggest hike since 2000; balance sheet runoff from June
Bitcoin at decision: $39,050
Bitcoin, one week later: -23.6%

The decision and the answer

The Fed raised its target range to 0.75% to 1.00% and said it would begin shrinking its balance sheet in June. In the press conference, CNBC's Steve Liesman asked whether 75 basis points was possible. Powell replied that "a 75-basis-point increase is not something the Committee is actively considering", while further 50bp hikes were "on the table" (Fed transcript).

Down first, then up

1 19:35 UK: low, about 1.2% down
2 20:10 UK: high, about 2.6% up

Bitcoin, 5-minute candles, % from the 19:00 UK decision price. Source: Bitstamp.

The statement itself did little. Bitcoin drifted down to about 1.2% below the decision price by 19:35 UK, during the opening of the press conference. The turn came during the questions. It reached about 2.6% up at 20:10 UK and was +1.49% at the hour, #16 of 80 Fed decisions at 3.4 times a normal hour. Stocks moved the same way: the Dow closed 932 points higher, its best day since November 2020 (CNN, Business Insider).

First hour as a multiple of each coin's normal hour.

The reversal

The next day undid it. CNBC reported that the Dow lost 1,063 points on 5 May and the Nasdaq fell 4.99%, erasing the Fed-day gains before noon in New York. Reuters said traders raised their bets on a 75bp hike in June. Bitcoin was -5.7% a day after the decision.

Then crypto had its own collapse. TerraUSD first slipped from its $1 peg on Saturday 7 May and broke materially on Monday 9 May (Jump Crypto, Bloomberg). Bitcoin was -23.6% a week after the Fed decision, and Chainlink -36%.

The lesson is about time frames. A press-conference rally reflects one sentence. The day after reflects what traders think of it with the rest of the data in view. Here, the sentence was later contradicted: the Fed raised rates by 75 basis points in June. The June decision and July decision both brought larger first-hour Bitcoin gains, 2.0% and 4.3%.

Sources: release time and figures from the Federal Reserve's statement and target range (FRED DFEDTARU). Crypto: Bitstamp 5-minute candles; SPY/QQQ: IEX. No consensus forecasts are shown because they are proprietary; comparisons are with the previous release. “× normal hour” compares the first-hour move with the median move in matched quiet hours. How we measure it.