Wall Street reeled on Thursday. The stock and cryptocurrency markets faced a sharp decline as concerns over an imminent interest rate hike surfaced.
The Dow Jones Industrial Average fell 506 points, down an alarming 1.5%, while bitcoin stumbled to $30,600. Both reflect the jittery reaction to strong labor market data and expectations of monetary tightening by the US Federal Reserve.
The stock and cryptocurrency markets react to the potential price hike
The Dow’s fall to 33,782 was reversed, down 1.6% in the Nasdaq and 1.4% in the S&P 500. Meanwhile, the cryptocurrency market showed signs of weakness. Bitcoin has pulled back from a 13-month high, further amplifying the effects of a general downturn in the market.
Concerns were largely driven by the strong labor market data, which was revealed in ADP National Employment Report.
According to the report, private payrolls rose more than expected in June. This is an indication of the resilience of the labor market even amid looming recession risks from higher interest rates.
The strong jobs data, along with the hawkish minutes of the Federal Reserve’s June meeting, raised fears of a rate hike that could stifle market growth.
Despite the heightened risks, the Fed appears eager for further policy tightening.
“Since the ADP number was almost double what was expected, it generally means that there is potential for further price increases in the future.” He said Randy Frederick, Managing Director at Charles Schwab.
In fact, the market is now anticipating a near 92.4% chance of a quarter-point hike at the next Federal Reserve meeting on July 26th. This is a jump from 90.5% earlier in the day, as calculated by CME’s Fedwatch tool.
Furthermore, President of the Federal Reserve Bank of Dallas Lori Logan supported Possibility of raising prices. He stated that it was “absolutely appropriate” to raise interest rates at the June policy meeting because it is consistent with the Fed’s “dual mandate goals”.
These price rally predictions have far-reaching implications, touching not only the traditional markets, but the cryptocurrency market as well. Traders are now factoring in a 75% chance of three additional price increases by the end of the year.
This forecast extends the tightening cycle and indicates that the Fed’s monetary policy could remain a driving factor in the coming months for the stock and cryptocurrency markets.
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