The U.S. Federal Reserve raised interest rates by 75 basis point, increasing the Fed funds rate to 3.25%. The global crypto market cap has fallen to $1 trillion, trading below $19,000 after the announcement. The U.S. Federal Reserve raised the federal funds rate by 75 base points, marking a 15 year high.
The market pricing was up 75 basis points in advance of the decision on Wednesday.
The Committee aims to achieve maximum employment and inflation at a rate of 2 percent for the long-term. The Fed stated that the Committee raised the federal funds target rate from 3 to 3-1/4% in support of these goals and expects that continued increases will be appropriate.
Interest rates reach a 15 year high
This move is meant to combat inflation, which has risen by 0.1% month-on-30 from July to August and 8.3% annually in August. Jerome Powell stated that today’s decision will depend on “totality” of the incoming data, and the changing outlook. “
Bitcoin’s price jumped to \$19,000 after the news. It had traded at $19,500 before the announcement.
According to TradingView data, bitcoin trades at $18,900 as of the writing.
How will the rate hike affect crypto in the future?
It’s not clear what will drive crypto prices higher in the short term, with crypto prices still stuck in the dumps and no major events scheduled after last week’s Merge.
James Malcolm, UBS’ head of FX strategy, addressed The Block before the announcement.
He stated that “Now that the Merge has ended and activity in crypto has slowed back, it’s hard to imagine a new catalyst other than a simple recovery of risk asset.” Malcolm said that a Fed that is slightly less dovish would be an example for such a catalyst. However, crypto should continue to face the threat of tighter regulation.
Malcolm said that there is an apparent disconnect between crypto advocates, potential adopters, and it is “seemingly impossible to bridge”. He stated that advocates should “amend and recognize setbacks and address obstacles” rather than repeating how this is the best innovation since the internet.
Malcolm states that traditional asset managers have unique needs and constraints, and that long-standing legal and regulatory hurdles cannot be ignored by ever-evolving hype.
“Crypto service companies still refuse to meet them at their level, metaphorically speaking, or address their specific concerns. Infrastructure-wise, what they call an “institutional grade offering” is very different from what we know it to be in terms of prime brokerage, liquidity provision, etc.” he concluded.
Future fed decisions will be aggressive to meet inflation
Caxton’s head of market insight, Michael Brown, stated to The Block that Fed will take more aggressive actions, mainly through hawkish messaging and a steep upward revision of the dot plot for this year and next. This will make risk assets, including crypto, bearish.
He stated that the Fed funds rates are set to rise to a record 15-year high and that there are downside risks to crypto.
QCP Capital, a crypto investment firm, stated in its Wednesday market report that it expects a 75-basis point increase and a 50-basis point downshift at the next meeting. This could be enough to cause a market rally, the firm said.
According to the QCP update, “Every FOMC meeting this season has preceded an increase in markets,” QCP shared below. The QCP team asked how long the rally will last.