Fed’s 0.25% Interest Rate Hike Calms Nerves, Helping Both U.S. Stocks and Bitcoin
On Wednesday (March 17), the Federal Reserve (which is the central bank of the U.S.) approved the first interest rate rate increase in over three years. However, both the U.S. stock market and the crypto market took the news well since they finally got some clarity.
According to the Fed’s press release, the Federal Open Market Committee (FOMC) — which “seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run” and “expects inflation to return to its 2 percent objective and the labor market to remain strong” — had “decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent” and it “anticipates that ongoing increases in the target range will be appropriate.” Furthermoe, the FOMC “expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
Federal Reserve Chair Jerome Powell delivered his remarks about the Fed’s monetary policy at a press conference following the conclusion of a two-day meeting of the FOMC.
According to the official transcript of Chair Powell’s statement at the FOMC press conference, he said:
“Today, in support of these goals, the FOMC raised its policy interest rate by 1/4 percentage point. The economy is very strong, and against the backdrop of an extremely tight labor market and high inflation, the Committee anticipates that ongoing increases in the target range for the federal funds rate will be appropriate. In addition, we expect to begin reducing the size of our balance sheet at a coming meeting…
“The median projection for the appropriate level of the federal funds rate is 1.9 percent at the end of this year, a full percentage point higher than projected in December. Over the following two years, the median projection is 2.8 percent, somewhat higher than the median estimate of its longer-run value.“
This 0.25% rate hike should have been expected (and therefore priced in) since — according to Yahoo Finance — Chair Powell had made the following remark on March 2 during a testimony before U.S. Congress:
“I’m inclined to propose and support a 25 basis point rate hike.“
However, there were some people who had been worrying that yesterday the Fed might announce a 50 basis points rate hike to deal with raging inflation in the U.S. As you may remember, on March 10, the U.S. Bureau of Labor Statistics issued a press release to announce that over the last 12 months, the Consumer Price Index for All Urban Consumers (CPI-U) had “increased 7.9 percent before seasonal adjustment.”
As prominent macro-economist and crypto analyst Alex Krüger pointed out, the U.S. stock market (as well as the crypto market) took the news from the Fed well.
The main three U.S. stock market indices, i.e. the Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq Composite, went up 1.55%, 2.24, and 3.77%.
According to a report by CNBC, Jeffrey Gundlach, CEO of DoubleLine Capital, said on “Closing Bell: Overtime” that he “expected markets to rally between now and the next Fed meeting in May after selling off sharply to start the year.”
The FOMC press conference started at 2:30 p.m. ET or 6:30 p.m. UTC on March 16. At that time, according to data by TradingView, on crypto exchange Bitstamp, Bitcoin was trading around $39,748. Within 43 minutes, Bitcoin was trading around $41,457, which is an increase of 4.3% (which you will notice is not too different from how much the Nasdaq Composite went up).
Currently (as of 10:55 a.m. UTC on March 17), Bitcoin is trading around $40,715, up 1.07% in the past 24-hour period.
Earlier today, Dutch crypto analyst Michaël van de Poppe’s offered this technical analysis of Bitcoin’s latest price action:
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.