Replays · FOMC · 27 Jul 2022, 19:00 UK
The hike that sounded like the beginning of the end
The Fed delivered exactly what it had signalled, another three-quarter-point hike. Crypto rallied anyway, and kept rallying through the night: Bitcoin +11.0%, Ether +16.6%. What moved markets wasn't the hike. It was a few sentences in the press conference about what came next.
No surprise in the decision
By July 2022 the Fed was raising rates faster than at any time since the early 1980s. June's 75bp move had been the biggest since 1994, and inflation had since come in at 9.1%. A second 75bp hike, taking the range to 2.25–2.50%, was widely expected. Crypto had spent the first half of the year collapsing, with the Terra and Celsius failures in May and June, and Bitcoin was trading around $21,600.
Two stages
- 1 19:00 UK: the statement and the 75bp hike
- 2 19:30 UK: Powell's press conference starts
- 3 20:25 UK: the evening high, about $23,100
The statement itself was enough for a 1.5% jump in the first five minutes, but for the next half hour Bitcoin went nowhere. The second leg began when Powell spoke. He said the Fed's rate was now at the level officials thought of as neutral, and that at some point it would be appropriate to slow the pace of increases. Markets heard a peak coming into view. Bitcoin climbed steadily through the press conference and peaked at 20:25 UK, about 6.9% above the decision price.
That gives a first hour of +4.29%, 10.0 times a normal hour and #3 of 80 Fed decisions in our data. US stocks agreed: the Nasdaq-100 ETF rose 1.2% in the first hour after the decision.
Ether's extra push
Ether's gains outran Bitcoin's, as they had for most of July. Its software upgrade to proof of stake, the Merge, had been given a provisional September date, and traders were already buying ahead of it. A friendlier Fed added to that. The next morning, US GDP data showed a second quarter of contraction, which reinforced the idea that rate hikes would soon slow.
They didn't, at least not quickly. The Fed raised by 75bp again in September and in November, as the staircase above shows. But for a day in July, crypto traded as if the worst of the tightening was over.
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.