Fed’s fight over inflation continues and they have shown determination to bring it under the 2% target. Bitcoin has entered a mild correction along with US equities.
On Wednesday, March 22, Federal Reserve Chairman Jerome Powell announced another quarter percentage points rate hike and the ninth since March 2022. Besides, he also cautioned about the recent banking crisis and indicated that the hikes are nearing an end.
The Federal Open Market Committee (FOMC), however, said that there’s no assurance over future rate hikes and shall strongly depend on the incoming data. The FOMC’s post-meeting statement reads:
“The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
Although Powell’s comments yesterday mean that the Fed is considering an end to the rate hike, he stressed that the fight against inflation isn’t over. The Fed chairman said:
“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy. “We are committed to restoring price stability and all of the evidence says that the public has confidence that we will do so, that will bring inflation down to 2% over time. It is important that we sustain that confidence with our actions, as well as our words”.
Powell also acknowledged that the recent developments in the US banking system could lead to tighter credit conditions. However, he added that don’t expect rate cuts any time soon ahead in 2023.
The FOMC statement also notes that “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks”.
Impact of Rate Hike on Bitcoin and Crypto
The 25 basis points rate hike by the Fed on Wednesday was quite on the expected lines. However, the markets didn’t absorb the Fed’s decision of continued monetary tightening well. Although the US market opened in the green, the top three Wall Street indices dropped to the tune of 1.6% in the wee hours.
Some sort of selling pressure has also ensued in the crypto space. The Bitcoin (BTC) price has dropped by more than 2% and is currently at $27,742 with a market cap of $536 billion. Bitcoin is closely following the Nasdaq 100, which dropped by a similar magnitude on Wednesday.
Bitcoin has had a phenomenal rally this year and especially over the last week amid the unfolding banking crisis. The world’s largest cryptocurrency has emerged as a trusted destination for investors as cracks appear in the traditional banking sector.
Along with bitcoin, altcoins also have come under similar selling pressure. Ethereum (ETH) and all other top ten altcoins have come under similar selling pressure.
Some analysts have been expecting that Bitcoin is looking strong and could touch $30,000 and even move further to $35,000 by the year’s end.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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