The Federal Reserve (Fed) of the United States will hold a two-day monetary policy meeting on Wednesday, during which officials may change the policy statement and abandon their tightening stance, although it is expected that interest rates will remain unchanged. In addition, tech giants such as Apple and Microsoft will also release their earnings reports.
Summary:
Don’t go against the Fed! Analyzing Fed’s monetary policy and BTC’s historical price changes.
Background:
Fed Dove Predicts Two Interest Rate Cuts in 2024, Action Expected in the Third Quarter.
Last December, the Federal Reserve decided to pause interest rate hikes for the third time, keeping the federal benchmark rate unchanged in the range of 5.25% to 5.50%. They further signaled their dovish stance, with expectations of at least three interest rate cuts in 2024. The median estimated rate for the end of 2024 is 4.6%.
Against the backdrop of market expectations for rate cuts, the Federal Open Market Committee (FOMC) will hold its first meeting of the year on January 30th and 31st. According to the CME Fed Watch Tool, the market currently expects a 97.9% probability that the Fed will keep the federal benchmark rate unchanged in the range of 5.25% to 5.50%, and only a 2.1% probability of a 0.25% rate cut to 5.00% to 5.25%.
Source: CME Fed Watch Tool
In this regard, Nick Timiraos, a journalist from The Wall Street Journal known as the “Fed megaphone,” wrote on the 28th that due to continued steady economic growth, the Fed is not expected to cut interest rates this week. Although the core CPI, excluding food and energy costs, has been at or below 2% for six months in the past seven months, the Fed wants to ensure that this situation continues before considering rate cuts.
It is worth noting that Fed officials may take an important symbolic step this week by no longer implying in the policy statement that rates are more likely to rise rather than fall. This would indicate a departure from their tightening bias and demonstrate that officials are considering rate cuts in the coming months.
Nick Timiraos pointed out that the Fed usually cuts rates when economic activity slows sharply, but this is not the case this time. Until the end of last year, the US economy remained unexpectedly strong. Now, Fed officials are considering whether the weakening inflation, if left unaddressed, could excessively restrict economic activity.
Major tech giants, including Apple, Microsoft, AMD, Google parent company Alphabet, Qualcomm, Amazon, and Meta (Facebook’s parent company), will also release their latest earnings reports this week. The earnings and market outlook of these industry leaders are expected to deeply affect the investment sentiment in the AI industry and supply chain.
According to Reuters, among the “Big Seven” tech giants that have mostly driven the S&P 500 index higher in the past year, Alphabet, Microsoft, Apple, Amazon, and Meta account for nearly 25% of the index’s market capitalization. Therefore, their earnings decline could weaken the overall market momentum. Liz Ann Sonders, Chief Investment Strategist at Charles Schwab Investment Management, said that if these companies’ earnings decline, it could lead to a weakening of the overall market.
On the other hand, prior to the Fed’s announcement of its latest interest rate decision this week, the “little non-farm” ADP employment report and the JOLTS job openings report, also known as the “Job Openings and Labor Turnover Survey,” will be released ahead of time. The ADP report will be released at 9:15 p.m. Taiwan time on January 31st, while the JOLTS report will be released at 11:00 p.m. Taiwan time on January 30th. Market expectations are that both reports will show a slight decrease compared to the previous month, highlighting a cooling job market.
The US non-farm payroll employment data for January will be released at 9:30 p.m. Taiwan time on February 2nd. It is expected that non-farm payrolls will increase by 177,000, significantly lower than the previous month’s 216,000, and the unemployment rate will remain at 3.7%.
There will be several key economic data releases and important company earnings reports this week, which could cause significant market volatility. Investors should exercise caution.