The Federal Open Market Committee has hiked the interest rate by 75 points for the third time. This is no surprise for the investors as the committee had signaled an incoming series of hike rates to tame the rising inflation in the U.S.
A glance at Fed’s history of hikes in interest rate in 2022
|Date||Rate Change (bps)||Federal Funds Rate|
|September 21, 2022||75%||3.00% to 3.25%|
|July 27, 2022||75%||2.25% to 2.5%|
|June 16, 2022||75%||1.5% to 1.75%|
|May 5, 2022||50%||0.75% to 1.00%|
The Fed hikes interest rate by another 75 points for the third consecutive time. Currently the inflation rate in the U.S is at 8.26% and was 8.52% last month. The central banks decision of stiffening the interest rates in a staggered manner may help tame inflation but assets like Bitcoin are taking the bullet.
Bitcoin (BTC) has been trading between $19k to $20k for a while and has recently seen a sharp downtrend and is now ranging a little over $18k.
The federal funds rate will change to 3 to 3.5% which is the highest since 2007. The rate was zero for the past two years. Traders contemplate that this rate may spike to 4.25%. Once and if the terminal rate is reached, some of the top Fed officials foresee this rate to remain unchanged in 2023 as well. (in disagreement amongst central banks)
“If the Fed remains hawkish, we are likely to see markets test lower lows and remain muted until inflation figures appear to start improving,” Joe DiPasquale, CEO of crypto hedge fund manager BitBull Capital, told CoinDesk.
Highlights from FOMC’s meeting
According to the FOMC, a group of Fed , the production and spending has seen a slight rise, the job market is improving and the unemployment levels are low.
According to the statement by the Federal Open Market Committee (FOMC), a group of Fed officials who sets monetary policy. The decision to hike interest points came after August’s consumer price index (CPI), key findings. It showed a spike in inflation by 0.6% excluding the energy and food sector. The antagonizing reports have evoked speculation that the Fed may raise interest rates by 100 points.
A 1% hike would have been “radical and a signal to markets that the country’s central bank has lost control and is in panic mode, and that the likelihood of a recession has just increased considerably,” said Scott MacDonald, chief economist at Smith’s Research & Gradings.
Additional Read: What the FOMC Meeting Means for the Crypto Markets
The FOMC has not shared any roadmap for 2023. The Fed is currently aiming at reducing the inflation rate to 2%. The committee will keep the inflation rate and the interest rate point in check to combat inflation. The key indicator of inflation rate would be the CPI results.
By the end of 2022, the Federal funds may reach 4.4%. The Fed Reserves have signaled that it may not cut rates by 2024 which has sent jitters across the country.
How will the interest basis point hike impact crypto?
The interest rate hikes have enmeshed the crypto market since the Fed has consecutively hiked interest points. Major tokens have seen a hit in value since the Fed has made monetary policy changes to tame inflation. Some organizations, crypto investors have liquidated their holdings for the past few months due to rising prices of fuel and essentials.
The Russia Ukraine war has added fuel to the fire. With no imports of fuel from Russia, the price of fuel has shot off the roof.
However, many believe that this is the right time to build web3 platforms in space.
Riyad Carey, a research analyst at crypto data firm Kaiko said, This is yet another reminder that crypto moves at the whims of the Fed
A 75 basis point hike would be “well received,” given that the probability of a larger move was priced in by traders as well, comment by Joshua Lim, a crypto derivatives trading specialist.
“With Fed terminal rates in the mid-4% range, one thing we continue to hear is markets’ interest in real-world yields on-chain. This is a growing area, with on-chain credit to electronic market makers being the bulk of it,” Joshua added.