Wall Street and Cryptocurrencies Decrease due to Rate Hike Concerns
The Dow Jones dropped by 506 points while the price of Bitcoin fell to $30,600 in the first week of July.
The rise in June’s private payroll has increased the probability of a quarter point at the Fed’s July 26 meeting to 95%.
Traders have anticipated that there will be three more Fed rate hikes during the remainder of the year.
Keywords: Bitcoin price, BTC price, Bitcoin investors, crypto investors, stock market, monetary policy, Federal Reserve interest rate, crypto Fed meeting
Introduction
There are times when economic fundamentals affect the values of investment assets like cryptocurrencies, commodities and stocks. Changes in household disposable income, job and growth rates can promote or discourage investment in assets.
In this article, we discuss how the recent United States job report has affected the values of stocks and cryptocurrencies.
Values of Bitcoin and Dow Jones Fall
In the first week of July 2023 Wall Street Stocks and cryptocurrencies experienced sharp price decreases as the market expected more rate hikes. For example, the Bitcoin price fell to $30,600 while the Dow Jones Industrial Average dropped by 506 points which represents a 1.5% decline.
The market simply reacted to the possibility of a Fed Rate hike that is imminent as a result of robust labor market data. After the Federal Reserve paused interest rate hike in June it is most likely that it will continue to tighten its monetary policy in the coming months.
How the Stock and Crypto Market Have Responded to the Emerging Economic Situation in the United States?
As stated previously, the values of the main stock assets that include Dow Jones fell remarkably within the first week of July. For example, the Dow Jones tumbled by 33,782 while Nasdaq and the S&P 500 lost by 1.6% and 1.4% respectively.
Similarly, the fall in the BTC price indicates how the crypto sector also slumped during that period due to the worsening economic situation in key economies like the United States. The data on employment that shows a robust labor market injected fear in investors.
The report shows that private payrolls increased by greater margins than expected which indicates the labour market’s resilience in the face of an anticipated recession and a hike in interest rates.
According to the US Bureau of Labor Statistics 209,000 jobs were added to the United States economy in June which resulted in the unemployment rate to drop from 3.7% to 3.6%. However, June’s job figure was less than that of May which had 306,000 jobs.
The fact that the average hourly earnings for June increased by 0.4%, which was the same as that of May, indicates that wage inflation is still persistent. In addition, the year-to-year average hourly earnings growth remained at 4.4%. As such, the statistics show that the job market and wage gains have not slowed down as expected.
Basically, the job market remains vibrant despite the highly expected recession in the USA. Also, Payroll company ADP said that private payrolls increased to 497,000 which is far higher than what economists had expected. They had anticipated that the private payrolls would increase by 228,000.
Another surprising development is the increase in the number of people who applied for unemployment benefits in the first week of July. The Labor Department said that claims for state unemployment benefits rose to 12,000 resulting in a season adjusted figure of 248,000 in the last week of June.
This is contrary to the Fed’s expectation, something that is likely to influence its decision to increase the Fed Rate in July. Markedly, the Federal Reserve aims to see the labor market slow down to sustainable levels which can bring it to “better balance.”
However, for the labor market to strike a better balance the payroll growth should range between 70,000 and 100,000. As well, any growth in the job rate should be in line with the population growth in the country. On the other hand, unemployment should rise based on economic forecasts.
It is on the backdrop of the above developments that the Fed is expected to hike the Fed rate. Dave Gilbertson, a labor economist at payroll software company UKG informed CNN that the Fed is likely to increase the interest rate in July.
Gilbertson said, “This is clearly a very tight labor market, so I expect the Fed to look at this data and say there is justification here for continued small rate increases because the labor market is not cooling enough.”
On the other hand, the Managing Director at Charles Schwab, Randy Frederick said, “Since the ADP number was almost twice of what was expected, it generally implies there’s potential for more rate hikes going forward.”
95% Chance of Quarter Point at Fed Meeting
According to the CME FedWatch Tool, there is a 95% chance of a quarter-point Fed Rate hike at the next crypto Fed meeting earmarked for 26 July. On the other hand, traders are factoring a 75% chance of 3 more rate hikes by the end of the year.
Generally, some analysts contend that the Fed’s monetary policy will remain a key factor in determining the performance of both the crypto and stock markets during the next few weeks and months.
Final thoughts
The actions that the Federal Reserve will take during the remainder of the year depends on the performance of the economy. So far, the resilient economy, persistent inflation and a booming job market are likely to enhance the Fed aggression. This may influence Bitcoin and other crypto investors to reduce their investment in cryptocurrencies and the stock market.
As we have noted above, many companies are still hiring and consumer spending continues to drive economic growth which is likely to keep on pushing inflation up. However, Ryan Sweet, an Oxford Economics Chief Economist believes that the Fed may have other options rather than hiking rates.
Commenting on the Fed’s possible moves RSM Economist Tuan Nguyen said, “It’s important for the Fed at the moment to have all the options on the table. Whether it’s the July meeting or the September meeting, all of those meetings will be live, meaning the Fed will have the options of whether to pause or hike.”
In conclusion, the fear of rate hikes resulted in the fall of Dow Jones points as well as the decrease in prices of several cryptocurrencies that include Bitcoin. Already, the prevailing labor market conditions have forced Bitcoin investors and other traders to factor in a 75% probability of three more interest hikes during the rest of the year.
Read also: Prediction of BTC Halving from 2024 to 2031
FAQs about Effect of Fed Rate Hike on Cryptocurrency and Stock Market
What is the current situation of Bitcoin?
Bitcoin is trading at around $30,336 and is showing potential for further price rise. For the past three months, it spent most of the time fluctuating between $27,000 and $28,000.
Is high interest rate good for crypto?
High interest rates are not good for cryptocurrency because they force investors to put their funds in less riskier assets like commodities. It is important to note that cryptocurrencies are high risk investment assets.
What are Fed Rate hike stocks?
A Fed hike is an increase in the United States’ main interest policy rate which affects the value of different investment assets. In other words, the Fed Rate is the interest rate which the central bank of the United States charges for borrowing money.
How will Fed Rate hike affect crypto?
An increase in the Fed rate is likely to reduce investment in cryptocurrencies as investors will shift their funds to less volatile assets. This is because cryptocurrencies are high risk investment assets.
