On Wednesday, the Federal Reserve raised its benchmark rate to between 5% and 5.25%, in line with market expectations. The announcement had little impact on the price of Bitcoin, which remained relatively stable at around $28,000 to $28,500. The CME FedWatch tool had predicted an 11.8% chance that the Federal Open Markets Committee (FOMC) would keep rates flat.
Fed aims to quell inflation
The Federal Reserve has been raising interest rates since last year in an effort to control inflation, which reached a 40+ year high of 9.1% in June 2022. The central bank hopes that increasing rates will help to cool down the red-hot consumer price index inflation.
Financial commentators like BitMEX co-founder Arthur Hayes predicted that the Fed might stop raising rates and even begin lowering them far sooner than expected after multiple bank failures took place before the previous rate hike in May. However, others like former Richmond Fed Chief Jeffrey Lacker expected that the Fed would remain firm in hiking rates in the face of bank failures, rather than signal to markets that something is amiss.
Future concerns and Fed’s reassurance
Despite the Fed’s efforts to reduce inflation, some believe that inflation may not remain at its current rate due to the Federal Reserve’s actions to protect the banking system. The central bank has already injected hundreds of billions of dollars back into the economy.
In a press release accompanying its rate hike announcement, the Fed stated that the US banking system is sound and resilient. However, it also noted that tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The central bank added that it would adjust its monetary policy stance if risks emerged that could impede the attainment of the Committee’s goals.
Leave a Reply