Expected interest rates hold steady; stocks, Bitcoin, and other assets surge significantly
The Fed decided to keep US interest rates at 4.25 to 4.50 percent as anticipated, but the meeting still left investors on the edge. Here's what you need to know about how stocks, gold, Bitcoin, and the dollar are reacting.
Quantitative Tightening: More Liquidity, More Uncertainty
The Fed is reducing its Quantitative Tightening (QT) program, slashing the amount of government bonds it withdraws from the market from $25 billion to $5 billion per month. This move suggests a bit more liquidity for stocks, but amidst the Fed's acknowledgement of increased economic uncertainty, the overall mood remains negative. The Fed predicts temporary inflation and sees the economy as robust, albeit with less growth this year than previously forecasted at 1.7 percent GDP.
Stock Market Reactions
Before the Fed's announcement, Wall Street was already friendly. The S&P 500 started the day with around 0.8 percent plus, fell to about 0.5 percent later, and then surged to 1.2 percent after Powell's speech. The tech-heavy Nasdaq gained more than 1.00 percent initially, and later even rose over 2 percent.
Despite the gains in Europe, there were profit-taking today, with the German DAX falling around 0.75 percent before the interest rate decision. Meanwhile, the Euro STOXX 50 fluctuated around the zero line. Both indices managed to recoup some losses before market close.
Gold, Dollar, and Bitcoin's Reactions
The gold price could not continue its impressive rally today but remains bullish above $3,000. The euro did start with losses against the dollar and depreciated to $1.09, but it has since stabilized following the Fed's decision.
As for Bitcoin, the cryptocurrency is fighting to recover from its recent slump, staying around 2 percent in the plus near $77,100 after the decision. However, it saw a significant rise after Powell's speech.
Hexensabbat and the Stock Markets
While the Fed's interest rate decision was as expected, it was far from the end of the financial week. On Friday, we have the "Hexensabbat"—the big options expiration day when most options on the stock exchanges expire. This event has the potential to cause strong price movements if large investors decide to manipulate prices in their favor.
In summary, the Fed's decision to keep interest rates steady and reduce QT suggests a more fluid financial environment for stocks. Stability in rates usually benefits the stock market, but the overall outlook remains clouded due to economic uncertainty. Gold, Bitcoin, and the dollar will likely remain affected by broader market sentiment and the Fed's ongoing efforts to manage inflation and growth. Keep an eye on the "Hexensabbat" this upcoming Friday, as it could bring further price fluctuations for various assets.
- The Fed's reduction in Quantitative Tightening could potentially bring more liquidity for stocks, but the continued economic uncertainty has kept investors cautious, even as the S&P 500 and Nasdaq showed gains following the announcement.
- As we approach the "Hexensabbat", a significant options expiration day, large investors may seek to manipulate prices, causing potential strong price movements in the stock markets, especially for tech-heavy indices like the Nasdaq, potentially affecting other assets such as gold, crypto, and the dollar.
