The Fed is back in focus this week, and markets are already preparing for another rate move.
Core CPI for August came in at 0.3% month over month, so inflation is still not completely out of the picture. At the same time, the market is putting around a 90% chance on a 25bp hike.
But honestly, the hike itself may not be the biggest thing to watch.
Most traders already expect it.
What really matters is what the Fed says afterward.
If Powell and the rest of the Fed sound like they are still worried about inflation and want to keep rates higher for longer, risk assets could feel some pressure. If they leave the door open to fewer hikes ahead, the reaction could be much more positive.
Bitcoin is one of the markets I’ll be watching closely.
BTC has been reacting more and more to the macro picture. Higher rates can keep money away from riskier assets, while tighter liquidity can make strong moves harder to sustain.
But I wouldn’t simply say “Fed hikes = Bitcoin dumps.”
Markets don’t work that cleanly.
If the 25bp hike is already priced in, we could even see a different reaction once the decision is out. The surprise usually comes from the message, not the number everyone was expecting.
Tech stocks could also see some volatility for the same reason.
For me, the main thing is to watch what happens after the initial move. Does BTC get sold? Does it recover quickly? Do tech stocks hold up? Does gold move higher?
Those reactions can tell us more than the rate decision itself.
So now the question is whether this is just another 25bp move or the start of a longer period of tighter policy.
We probably won’t know right away.
For now, I’d rather stay flexible than try to predict every move. Let the market show its hand first.
The Fed can set the tone, but price action tells us how traders actually feel.