How to interpret the FOMC interest rate decision and market reaction

1. What will be released at a FOMC meeting?

The policy statement that attracts the most attention at each regular meeting is the policy statement. The statement sets out the target range for interest rates and describes the committee's judgment on economic activity, employment and inflation.

Some meetings also release a Summary of Economic Projections (SEP), which includes officials' forecasts for economic growth, unemployment, inflation and policy rates. The "dot plot" often referred to in the market is each participant's anonymous judgment on the appropriate level of future policy interest rates. It is not a committee commitment, nor is it a fixed road map.

The statement is usually followed by a presidential press conference. Reporters' questions may involve conditions for interest rate cuts, financial conditions, balance sheets, banking systems and risk balance. The market reinterprets the text just released based on the answer, so the first move often reverses during the press conference.

2. Before the meeting: Find out what the market has expected

The first step in interpreting a resolution is not to predict the outcome but to record the market's baseline expectations.

A pre-meeting checklist may include:

-The current target range for the federal funds rate;

• The probability of raising, maintaining or cutting interest rates implied by interest rate futures;
• How many basis points the market expects to adjust cumulatively in the next twelve months;
• 2-year and 10-year U.S. Treasury yields;
• Recent positions of USD Index, Gold, S&P 500 and Bitcoin;
• Latest CPI, PCE, non-farm payrolls and unemployment trends.

If the market has priced in a 25 basis point interest rate cut to be close to certainty, then what really affects the price may be "whether the next cut will continue", "when the balance sheet will adjust" or "whether inflation risks will rise again."

3. Expected value vs. actual value: think in terms of differences rather than labels

Resolution results can be divided into three categories.

"Dove" and "hawk" are relative concepts. The same sentence, "Future decisions depend on data," may be viewed as hawkish when the market originally expected a rapid interest rate cut; it may be viewed as moderating when the market is worried about continuing to raise interest rates.

4. What changes in the statement are worth looking at?

A sentence-by-sentence comparison with the previous statement is often more useful than reading it in isolation. Need attention:

1. Whether the description of inflation changes from "still high" to "further progress".
2. Whether the judgment of the job market has changed from "strong" to "cooling".
3. Whether the balance of risks places more emphasis on falling employment, or re-emphasizes rising inflation.
4. Whether there are rhythm signals such as “Consider adjustment”, “Can start” or “Not in a hurry”.
5. Whether the speed and upper limit of balance sheet reduction have changed.

Individual words cannot be traded out of context. The committee may adjust the wording but give contrary conditions at the press conference.

5. How to read dot plots and economic forecasts

The dot plot shows the distribution of participant predictions, not the voting results. When reading a chart, look at at least three locations: the year-end median, the next year's median, and the long-term interest rate median.

It also depends on whether the distribution is concentrated. If the median moves only one point but most forecasts remain widely dispersed, uncertainty about the policy path is likely to be high. Economic forecasts also have to work together: Higher inflation, lower unemployment and higher policy rates are usually a relatively tight combination.

Predictions change with data. It is a common misunderstanding to regard the September dot plot as the inevitable result of December.

6. In what order should cross-asset reactions be observed?

FOMC You can first look at the interest rate market. The 2-year Treasury yield is more sensitive to future policy paths; the 10-year yield also incorporates growth, inflation and term premium. Then observe whether the US dollar moves in the same direction.

Bitcoin sometimes moves in the same direction as tech stocks and other times is dominated by ETF funding, liquidation, and crypto industry events. FOMC is an important variable, but not the only one.

7. Why do trends often reverse in the first minute?

After the statement is released, the algorithm will quickly read interest rates and keywords, and short-term positions will also be closed intensively. At this time, liquidity may become thinner and the price may first complete a quick jump.

Then the market starts dealing with dot plots and forecasts. After the press conference begins, the chairman's conditional statements may change the path of interest rates again. When cash markets and global traders adjust their positions, a third explanation may emerge.

Therefore, it is very risky to regard the first one-minute candlestick as the final conclusion. When there is no reason to trade immediately, it is often easier to execute a plan by waiting for spreads to recover and watching to see if multiple assets confirm each other.

8. Event Day Planning for Crypto Traders

FOMC Decide which type of participant you are: a long-term holder, an event trader, or a risk manager with existing leveraged positions. The three types of people act differently.

Long-term holders need to check asset allocation and custody, and do not need to frequently change positions for each meeting. Event traders pre-define entry conditions, failure points, maximum losses and holding times. Those who already have leveraged positions should focus on checking the liquidation price, funding rate, margin balance and stop-loss execution risk.

When using OneKey Perps or other on-chain derivatives venues, there is also confirmation of oracles, token prices, network fees, and transaction depth before an event. Even if the macro judgment is correct, losses may occur due to excessive leverage or excessive slippage.

A simple process is:

1. Record market expectations before the meeting and do not guess the direction temporarily.
2. Reduce unnecessary leverage and confirm the maximum tolerable loss.
3. After the announcement, look at 2-year yields and the dollar first, then stocks and Bitcoin.
4. Wait for the key questions and answers at the press conference, and don’t use the first wave of prices to prove your point.
5. After the meeting, review the expected difference, execution price and risk control, instead of just looking at profit and loss.

9. Common misunderstandings

“An interest rate cut will definitely be good for Bitcoin”

If the rate cut comes from a rapidly deteriorating economy, risk assets may trade into recession first. If the interest rate cut has already been priced in, the market may also "buy expectations and sell facts."

“The dot plot is the promise.”

Dot plots are conditional forecasts. The points will be adjusted after changes in inflation, employment and financial conditions.

"All assets should go in the same direction"

Different assets have different sensitivities to growth, inflation and liquidity. Short-term divergences are not uncommon.

“The price has gone up, so the statement is dovish”

Prices are also affected by positioning, option expirations, stops, and liquidity. First judge from policy documents, and then verify with market reaction.

10. A hypothetical case: Why did Bitcoin fall after the interest rate cut?

Assume that before the meeting, the market believes that the Fed has a 90% probability of cutting interest rates by 25 basis points, and expects three more cuts in the next six months. On the day of the resolution, the committee did cut interest rates by 25 basis points, but the dot plot only showed the possibility of another cut in the future, and the chairman said that services inflation was still high.

News headlines will read "Fed cuts interest rates," but the results are tighter than expected. 2-year yields are likely to rise, the dollar strengthens, and risk assets fall. It's not that interest rate cuts have lost their effect, but that prices have already reflected a more aggressive easing path.

Conversely, if the committee leaves interest rates unchanged but makes it clear that it may begin cutting rates at its next meeting, markets may view it as looser than expected. Labels must fit into the expected frame.

11. What else should be checked the day after the meeting?

The price on the night of the meeting is easily affected by short-term positions. The next day can be a time to revisit the yield curve, dollar, credit spreads and major stock indexes to see if they continue in the same direction. Subsequent comments from officials may also revise market understanding.

When reviewing, save pre-meeting expectations, statement changes, dot plot changes, press conference keywords and each asset response. After a few meetings, you can determine whether your macro interpretation is biased or whether your trading execution always gets out of control during high volatility.

References

1. Federal Reserve, FOMC: https://www.federalreserve.gov/monetarypolicy/fomc.htm
2. Federal Reserve, FOMC Calendars: https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
3. Federal Reserve, Summary of Economic Projections: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl2026.htm
4. Federal Reserve Bank of New York, Federal Funds Data: https://www.newyorkfed.org/markets/reference-rates/effr
5. BLS, Consumer Price Index: https://www.bls.gov/cpi/
6. Phantom, FOMC and Rate Decisions: https://phantom.com/learn/crypto-101/FOMC-rate-decisions

Disclaimer

This article is only for education on macroeconomics and market mechanisms and does not constitute investment advice. Severe volatility, slippage and liquidations can occur during interest rate resolutions. Historical relationships cannot guarantee future performance, please make independent judgments based on your own circumstances.