Crypto Markets Unperturbed By 0.75% US Fed Rate Hike, BTC Up 3%, Eth Up 2%
Bitcoin (BTC) and altcoins generated nominal gains after the Federal Reserve raised the benchmark interest rate by 0.75%, the largest hike in 28 years. Although crypto investors were initially spooked, the market quickly recovered all losses.
Fed chairman Jerome Powell said that members of the Federal Open Markets Committee felt that inflation has been stubbornly up and strong action was needed.
As rampant inflation shows no sign of subsiding, the U.S. central bank also warned that it “anticipates ongoing increases” will be appropriate later in the year.
Until recently, the Fed had been expected to settle for a half-a-percentage point increase — identical to the one that was enforced in May.
But last week’s confirmation that the U.S. Consumer Price Index had surged to 8.6% in May — a figure that took the markets by surprise — made it clear that more aggressive quantitative tightening was needed.
Although the interest rate hike could help cool inflation, which is contributing to the cost-of-living crisis, it’ll also make borrowing more expensive — and have an impact on everything from credit card payments to mortgages.
Fed Chairman Jerome Powell is now navigating a tricky tightrope as he attempts to curb inflation without triggering a recession.
BTC remained above the psychologically significant threshold of $20,000 when the announcement was made — and brutal sell-offs earlier on Wednesday were linked to nerves over what the Fed would announce.
Explaining why inflation remains elevated, rather than “transitory” as Chairman Powell had previously described, the Fed said:
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”
To put the current level of inflation into context, the Fed typically sets a 2% target – and the central bank says it is “strongly committed” to returning returns to that level.