On Wednesday, the Federal Reserve issued its latest interest rate hike in response to inflation. Fed funds rates were raised to a target of 4.5%. If you follow crypto news a little bit, you should probably know that each FED announcement has an impact on the price of Bitcoin. Let’s see together what will happen for the Bitcoin with this new announcement.
Interest rates higher than expected
Surprisingly, the Fed’s projections for the duration and value interest rates could be higher than expected. Almost all board members believe that an interest rate of just over 5% will be appropriate for next year, even into the fourth quarter.
The S&P 500 closed down 0.61% on the day. Bitcoin meanwhile stagnated at the close of the US stock market. However, he has fell nearly 1% during Asian trading hours.
For a brief moment on Wednesday, the bitcoin seemed to recover. It broke above $18,000 for the first time since the FTX platform collapsed a month ago. After the Federal Reserve announced an interest rate hike, the price of bitcoin fell back to around $17,800. At the time of writing, bitcoin is trading at $17,700.
Mr Powell himself said no one knew if a recession was to be feared. However, the Fed has been more belligerent than expected. The Fed announcement appeared to have a negative effect on stocks and Bitcoin.
Bitcoin, and crypto in general, thrive in loose monetary and financial conditions. Gold rushes tend to occur when interest rates are negative and misguided business ideas are easily funded.
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Rising rates = a blow for Bitcoin?
Several immediate systematic risks exist in the cryptocurrency market, such as the potential bankruptcy of the behemoths Digital Currency Group (DCG) and Grayscale, or the bitcoin miner crisis.
At a press conference on Wednesday, Federal Reserve Chairman Jerome Powell outlined the Fed’s philosophy. The latter is not convinced that inflation is falling as expected, despite a consumer price index (CPI) lower than expected this week.
The Fed needs a steady decline in inflation to ensure inflation goes down. Its inflation target is 2%, but the Fed forecasts an inflation rate above 3% for next year.
Powell was very clear about the Fed’s goals. It must tighten its monetary policy as much as it can in order to alleviate inflationary pressures as quickly as possible.
Suffer now to get better later
Failing to act quickly, Powell said, would result in rising inflation and prolonged economic decline. In other words, popping the pill today would help us get better faster.
The Federal Reserve’s next meeting is in February, and inflation may have eased enough to make its outlook less favourable. If inflation does not come down, we could stay in a higher interest rate environment for longer.
So far theEthereum held up very well in this bear market, unlike many other tokens. Only, the cryptocurrency sector has a long list of problems to deal with, separately from other financial markets. We could very well see crypto markets continue to decline as we close out the year.
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