The Federal Reserve announced on Wednesday that its benchmark lending rate will remain unchanged for now, abstaining from a rate hike during its latest Federal Open Market Committee meeting. This decision has led to mixed feelings in the financial world, especially amidst the ongoing regulatory storm clouds hanging over the digital assets industry, such as ongoing lawsuits against leading crypto exchanges like Binance by the Securities and Exchange Commission.
The current interest rate stands between 5% and 5.25%, making it the highest it has been since 2007. Although the Fed has opted for maintaining the present rates, it has signaled readiness for raising interest rates further if required. Fed Chair Jerome Powell stated that “nearly all Committee participants expected it will be appropriate to raise interest rates somewhat further by the end of the year.”
Conversely, regulators’ actions and the possibility of a Fed-induced recession may create a challenge for the Fed’s plans. To this end, the Committee is prepared to adjust monetary policy as needed should risks emerge that could hinder the attainment of its goals.
Crypto markets such as Bitcoin and Ethereum have experienced falls over the past week, trading sideways before and after the FOMC’s decision. The uncertainty surrounding the Fed’s approach towards interest rates has undoubtedly played a role in investors’ reactions to the digital assets market.
The Fed’s decision to hold interest rates stems from the inflation rate peaking at 9.1% last June, with the latest Consumer Prices Index report showing consumer prices rising 4% on an annual basis in May. Although this is significantly higher than the Fed’s target of 2%, traders estimated a nearly 98% chance of the Federal Reserve maintaining the current rates.
While there are growing questions about how long these rates will be sustained and the economy’s performance in this period, the most probable scenario according to the FedWatch tool is that interest rates will be held steady at least through year-end, with a nearly 43% chance of occurrence. The Fed acknowledges that the economy continues to expand, job growth remains stable, and unemployment is at near-historic lows despite the increased interest rates.
The current debate surrounding the Federal Reserve’s stance on interest rates exposes the delicate balance between supporting economic growth and controlling inflation, while also accounting for potential risks in the financial system. With tighter credit conditions likely to impact businesses and households, the Fed’s decisions will invariably influence the crypto market, an enigmatic space navigating a regulatory minefield in parallel.
Source: Decrypt
