The Federal Reserve’s announcement of another slight increase to its benchmark rate, bringing it between 5% and 5.25%, did not appear to have a major impact on the price of Bitcoin, which oscillated between $28,000 and $28,500. Many had anticipated this move, leaving just an 11.8% chance that the Federal Open Markets Committee (FOMC) would maintain a flat rate, according to the CME FedWatch tool.
This interest rate hike is part of the central bank’s ongoing efforts to rein in soaring consumer price index inflation, which skyrocketed to a 40+ year high of 9.1% in June of last year. Arthur Hayes, co-founder of BitMEX, had speculated that the Fed might cease raising rates and even begin lowering them earlier than anticipated, following multiple bank failures that occurred prior to the May rate hike. On the other hand, some, like former Richmond Fed Chief Jeffrey Lacker, maintained that the Fed would stay the course on rate increases even in the face of bank failures, rather than signal potential problems to the market.
By March 2023, inflation has been reduced to 5%. However, there are concerns that this might not last due to the Federal Reserve’s measures to protect the banking system, which have resulted in injecting hundreds of billions of dollars back into the economy. The Fed, in its rate hike announcement, assured that “the US banking system is sound and resilient.” It also noted that “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”
Furthermore, the central bank emphasized its readiness to adjust its monetary policy stance “if risks emerge that could impede the attainment of the Committee’s goals.”
What does this mean for the crypto market and enthusiasts? The somewhat stable response of Bitcoin to the Federal Reserve’s rate hike decision may suggest that it remains somewhat insulated from such developments. However, it’s essential to remain cautious and monitor the impacts of ongoing inflation and protective measures implemented by the Fed.
Ultimately, examining both the US economic landscape and the evolution of the crypto market in response to external factors will be crucial in understanding and navigating this complex scenario. While the Federal Reserve’s decisions have relatively predictable results so far, the overall market behaves in a more intricate manner. With every new development, such as rate hikes and protective economic measures, comes a renewed need for careful observation, analysis, and planning by crypto enthusiasts and investors alike.