Since the end of January, the market has experienced a remarkable U-turn on its interest rate expectations, and that’s no surprise. On Jan. 31, we saw the first United States Federal Open Market Committee (FOMC) meeting of the year and, contrary to expectations, policymakers took a decidedly hawkish stance , all but ruling out the chances of an interest rate cut in March. Then, on the subsequent Friday, U.S. labor data came in far stronger than expected.
Now, 83.5% of market participants expect the Federal Reserve to hold rates at their current level of 5.25%-5.5% in March, according to the CME FedWatch Tool: a remarkable change of heart from just a week ago, when more than half of market participants were convinced that rate cuts were imminent. Indeed, even a May rate cut appears less certain now, with 70% of respondents to a recent CNBC Fed Survey forecasting a cut no earlier than June.
With the labor market as strong as it has been, this gradual loss of confidence in a March rate cut is to be expected. The January unemployment report revealed that the U.S. economy added a whopping 353,000 jobs for the month, nearly doubling analysts’ expectations of 185,000. Unemployment is sitting at 3.7%, a multi-year low. And while there’s some anecdotal talk of layoffs, we’re yet to see any meaningful weakness filter through to the broader employment metrics.
In short, the U.S. economy is still going gangbusters, despite interest rates hovering at a 22-year high since July 2023. And so, as clearly stated by Federal Reserve Chairman Jerome Powell during the post-FOMC meeting press conference, the Central Bank will proceed with caution until they are certain that the threat of inflation has receded once and for all. And it appears global markets have accepted this at face value. The SP 500 index has barely moved since the FOMC meeting, while Bitcoin ( BTC ) has remained maddeningly stable between $42,000 and $44,000. In fact, we’re getting close to 150 days in a $5,000 BTC trading range.
But just because the Fed is holding doesn’t mean that the only option open to investors is to HODL as well. Sideways trading markets present the perfect opportunity to explore alternative investment strategies, and there are plenty of those around. For example, crypto structured products could be one potential avenue to explore to maximize returns without taking on excessive additional risk. These vehicles offer enhanced annual percentage yields (APYs), often come with an element of downside protection, and can be suitable for all market conditions, including flat markets. And the good news is that there is a growing choice of these investment vehicles in crypto, whose origins can be traced deep into the history of traditional investing.
So what does this U.S. monetary policy outlook mean for both crypto and TradFi markets for the rest of 2024? Unfortunately, those who expected an explosive bull market in the first half of the year will likely be sorely disappointed, because the lack of volatility we’ve seen in the markets this week is a sign of things to come. Indeed, until the Fed finally pulls the trigger on interest rate cuts, we’re unlikely to see the much-anticipated injection of liquidity needed to lift the markets to new highs. Despite the hype around the spot Bitcoin ETF approval and Bitcoin’s upcoming halving in April , it’s likely crypto and TradFi will remain flat as a pancake at least until the second half of 2024.