Stability of Bitcoin Amid Fed’s Rate Hikes: Analyzing the Conflict in Monetary Policies

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The Federal Open Market Committee (FOMC), led by the U.S. Federal Reserve, continued its string of rate hikes lasting over a year by increasing the fed funds rate by 25 basis points to a targeted range of 5% to 5.25%. Despite this widely anticipated move, Bitcoin’s price remained stable, trading at approximately $28,600 shortly after the announcement.

Investors and traders fixated on the policy statement, as well as Chairman Jerome Powell’s post-meeting press conference, for indications of whether the central bank was considering a pause in its historic rate hikes. These hikes elevated the fed funds rate from 0% in early 2022 to the current range of 5% to 5.25%.

The FOMC’s policy statement deviated from previous statements, which had hinted at the certainty of continued rate hikes. Instead, the statement pointed to “tighter credit conditions” as factors that could impact the economy in the future. Moreover, it emphasized that the central bank would consider the cumulative effects of monetary policy tightening, the lag between policy actions and economic consequences, and overall economic and financial developments.

Inflation has decreased substantially from almost double digits one year ago to a current rate of approximately 5%. Nonetheless, it is still significantly higher than the Fed’s 2% target, implying that further tightening of monetary policy may be necessary.

The Fed, however, must also contend with balance sheet issues at several U.S. banks, which may have been exacerbated by its rate hikes. A recent example of this challenge was the 12th-largest bank in the nation, First Republic, whose financial struggles necessitated a joint rescue by the Federal Deposit Insurance Corporation (FDIC) and JPMorgan.

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In conclusion, while the central bank’s latest rate hike and policy statement reveal a new level of caution in tackling inflation, concerns about the impact of monetary tightening on the banking sector could introduce additional challenges. Bitcoin, on the other hand, has remained stable for now, reflecting its role as a potential hedge against traditional market fluctuations.

Source: Coindesk

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