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    Mustafa has been writing about Blockchain and crypto since many years. He has previous trading experience and has been working in the Fintech industry since 2017.

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Fed Interest Rate Decision on May 7: What It Means for the Crypto Market

Story Highlights
  • May 7 decision expected to hold rates steady at 5.25% to 5.50% range, while June seem to be interesting.

  • June could bring change, as rate cut chances rising if jobs or inflation data weakens.

  • Markets focus more on Jerome Powellโ€™s words than actual Federal Reserve rate actions.

With the next U.S. Federal Reserve meeting just around the corner on May 7, traders and analysts seem to agree on one thing: thereโ€™s almost no chance of a rate hike or cut this time. But that doesnโ€™t mean the market is calm, far from it.ย 

All eyes are now on what Jerome Powell will say during the press conference, and how the economy performs heading into June.

May: No Change Expected

Polymarekt, a prediction market, predicts that thereโ€™s a 98% chance the Fed wonโ€™t change rates at its May meeting. On the other hand, another possibility is that there is a 2% chance of a 25 bps drop being seen in May.ย 

With inflation cooling slowly, but itโ€™s still above the Fedโ€™s 2% target. While the rates are already at 5.25% to 5.50%, the highest in over two decades, the central bank seems content to wait and watch.

But while a “pause” in May is nearly guaranteed, markets are not just looking at what the Fed does, theyโ€™re listening closely to what Fed Chair Jerome Powell says.

June: A Turning Point?

June is where things get interesting, with the possibility that the 72% chance the Fed wonโ€™t change rates at its June meeting. Further market odds suggest about a 25% chance of a rate cut, and that number could rise if job growth slows or inflation drops further.ย 

This makes upcoming reports on inflation and jobs critical. A weak job report or softer consumer price data could tip the balance toward a rate cut. 

On the other hand, if inflation stays sticky, the Fed might stick to its current stance or even start talking about keeping rates high for longer.

Powellโ€™s Tone Matters More Than Ever

Interestingly, the market may react more to what Fed Chair Jerome Powell says than to what the Fed does. If he talks too tough, using phrases like โ€œpersistent inflationโ€ or โ€œnot enough progress,โ€ markets could sell off sharply. 

Tech stocks and rate-sensitive sectors might drop, bond yields could rise fast, the U.S. dollar might gain strength, and assets like Bitcoin or gold could lose steam.

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FAQs

What is the current U.S. interest rate set by the Fed?

The current Fed interest rate is between 5.25% and 5.50%, the highest in over two decades.

What happens if the Fed keeps rates high?

Persistently high rates could hurt tech stocks, raise bond yields, and pressure gold and Bitcoin prices.

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