Bitcoin, crypto market set for key September test as FOMC's July minutes dim hopes for rate cuts

• Federal Reserve executives said inflation risks could outweigh unemployment risks in its last meeting.

• A decision to use inflation data as a gauge for establishing interest rates hampers the chances of a cut in its September meeting.

• Bitcoin and the crypto market held steady following the release of the FOMC's July meeting minutes.

Bitcoin (BTC) and the broader crypto market held steady on Wednesday after the Federal Open Market Committee (FOMC) released minutes from its July policy meeting, showing that officials are leaning toward inflation data as the key factor in reaching interest rate decisions.

Bitcoin, crypto market hold steady despite hawkish July Fed report

The FOMC July meeting minutes show that the Federal Reserve is leaning toward inflation data rather than unemployment rates as its basis for establishing interest rates — a deviation from September last year, when it cited a weak labour market as the main reason for easing rates.

A decision to use inflation data as a gauge for lowering rates could delay potential rate cuts, the Kobeissi Letter said in an X post on Wednesday. 

The July inflation report showed that the Consumer Price Index (CPI) stayed at 2.7%, while the Producer Price Index (PPI) surged 0.9% month-over-month, marking its highest increase in over three years.

While the US added 73,000 jobs last month, increases for May and June were trimmed by 125,000 and 133,000, respectively. Notably, the Fed's July meeting occurred before the release of last month's jobs report, meaning policymakers did not have a full picture of the labor market's condition.

The upcoming jobs report on September 5 could prove crucial in shaping the Fed's next move, potentially determining whether policymakers stay on hold or begin easing rates, noted The Kobeissi Letter.

Bitcoin, and by extension the crypto market, may be set for increased volatility as the day approaches, considering its rising correlation with interest rate decisions over the past few years.

Policymakers were divided at the FOMC meeting, with governors Christopher Waller and Michelle Bowman calling for a rate cut while most favored holding rates steady.

This marked the first time that multiple governors voted against a rate decision in more than 30 years. The majority of policymakers said it was too early to begin easing policy, citing rising economic risks.

Ahead of the Fed's September meeting, investors are anticipating Fed Chair Jerome Powell's speech at Jackson Hole on Friday for clues on what to expect.

"Powell appears ready to hold rates steady if he feels it is necessary," wrote the Kobeissi Letter.

The crypto market held steady despite the release of the minutes. A slight dip briefly sent Bitcoin below $113,000 before recovering towards $114,000 at publication time.

The altcoin market also saw a brief recovery, with Ethereum (ETH), XRP, and Solana (SOL) rising 3%, 2% and 4%, respectively.