The U.S. Federal Reserve increased the federal funds rate by 75 basis points, the highest level in 15 years.
The market had already witnessed a rise of 75 basis points when the decision on Wednesday was made, which was predictable.
Over the long run, the Committee aims to achieve maximum employment and inflation at 2%. It decided to boost the federal funds rate target range to 3 to 3-1/4% and believed further increases in the target range would be appropriate.
The action aims to combat the scorching inflation, which rose by 0.1% from July to August and 8.3% annually in August. In August, Jerome Powell stated that the totality of the incoming data and the evolving outlook would determine today’s choice.
U.S. inflation rate & Fed funds. Source: Federal Reserve
In response to the news, bitcoin (BTC) prices fluctuated around $19,000 after recently trading near $19,500.
According to statistics from TradingView, bitcoin is changing hands for around $18,900.
How is crypto faring now?
It’s unclear what could drive up prices in the immediate future with crypto prices in a rut and no significant events scheduled after last week’s Merge.
James Malcolm, the head of F.X. strategy at UBS, addressed this issue in an interview before the announcement.
It’s challenging to imagine a fresh impetus for cryptocurrency beyond a quick recovery in risk assets now that the Merge is over and activity in the market has slowed down. According to Malcolm, a little more dovish Fed would be an example of such a trigger. Nevertheless, the prospect of stricter regulation should weigh on cryptocurrencies moving forward.
In addition, the gap between cryptocurrency proponents and potential consumers seems challenging to bridge. Proponents should amend their message, accept setbacks, and address remaining challenges rather than continuously rehashing how they think this is the next breakthrough since the internet.
Traditional asset managers have particular requirements and limitations, and enduring legal and regulatory barriers cannot be disregarded by stale hype.
Crypto service providers ignore their unique problems and refuse to meet them where they are, metaphorically speaking. Regarding infrastructure, what the industry refers to as an institutional-grade offering differs significantly from what we consider it to be in terms of prime brokerage services, liquidity availability, and other areas.
According to Michael Brown, head of market analytics at Caxton, more aggressive action by the Fed will be bad for risk assets in general, including cryptocurrency. This will primarily take the form of hawkish messaging through a sharp upward adjustment to the dot plot this year and next.
“With the Fed funds rate set to rise to a 15-year high, the era of cheap money is certainly at an end, and with downside economic risks mounting, the outlook remains poor for crypto in general,” he said.
In contrast, crypto investment firm QCP Capital anticipated a 75 basis point hike, with a change to a reduction of 50 basis points, sufficiently triggering a market relief rally.
“Every FOMC meeting this year has preceded an uptick in markets,” per the above chart QCP shared in its update. “How long this rally lasts is another question,” the QCP team wrote.
