Crypto Expert Takes: Fed Rate Hikebr>
The Federal Reserve on Wednesday approved its second consecutive 0.75 percentage point interest rate increase. Members voted unanimously in favor of the aggressive move to tackle the most intense breakout of inflation in the United States since the 1980s.
According to the Committee, they decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee said they are strongly committed to returning inflation to its 2 percent objective.
Below are some comments from those involved in managing or offering access to digital assets:
“The market reacted very positively to the increase of the 75 basis point, as the economy saw this as a bold move that could help slow down inflation faster. The crypto economy also moves up, overperforming the stocks, thanks to the higher volatility. It’s very interesting also to see how crypto is starting to correlate with the stock market and in general, with the planetary economy. It means that the crypto market is reaching a certain level of maturity.”
“Under Jerome Powell, the Fed places a special emphasis on communicating its position beforehand to avoid a knee-jerk reaction from the markets following the announcement of its policy decisions. In the lead-up to today’s meeting, Fed officials were quite clear that a full percentage point hike wasn’t really a viable option even as the CPI print came in hotter than expected earlier this month.”
“All in all, the markets have had enough time to digest and fully price in a 75 basis point rate hike. Major crypto assets, including Bitcoin and Ethereum, have actually rallied in the immediate aftermath of the announcement. This may suggest that market participants were actually quite fearful of the 100 bps and sighed with relief when the raise aligned with the consensus. Since the next hike doesn’t come until September, there may be some room for upside now – although that will be contingent on the strength of the dollar and the wider macro environment.”
“As it turns out, then, the September FOMC will be much more consequential. We will then have much more clarity in relation to the effect the rate hikes have had on the economy and whether we are in for a soft or a hand landing. If Jerome Powel ignores the growing evidence of a recession and continues on its hawkish course, it will be a strong signal to the markets that they can’t count on the Fed to pivot before the midterm elections in November. So a 75 or perhaps even 50 basis point rate hike in September will likely trigger a sharp sell-off in risk assets.”
“Today’s 75 basis point rise in the Federal Funds rate was in line with market expectations. At this point all markets are adrift including crypto. Until the economy breaks either up or down not much is going to happen. We anticipate that Bitcoin will continue to trade in this tight range of $20,000 plus or minus 10-15%. None of this should be a surprise. We could be in this stalled market for weeks and weeks. Boring.”