The U.S. Federal Reserve has maintained its benchmark fed funds rate range of 5.0-5.25%. This pause comes as the central bank seeks time to assess the consequences of its previous monetary tightening actions on the overall economy. Following Fed’s decision, Bitcoin declined and currently trades at around $25,000 at the time of writing.
The Fed embarked on a mission to rein in inflation, which had surged above 8% annually. Beginning in March 2022, it gradually tightened monetary policy, resulting in a series of ten consecutive rate hikes that pushed the Fed funds rate from 0-0.25% to the current range.
Over the past year, inflation has gradually decelerated, as evidenced by the May Consumer Price Index (CPI) report showing a decline to 4%, the slowest pace in two years. Although inflation remains above the central bank’s 2% target, the Federal Reserve underscores the time lags associated with monetary policy, suggesting that inflation is likely to subside further as the effects of recent rate hikes permeate the economy.
The Federal Reserve released its latest quarterly economic projections alongside the interest rate decision. Members of the FOMC now envision a terminal fed funds rate of 5.6% by 2023, surpassing the 5.1% anticipated in March. Looking ahead to 2024, the terminal fed funds rate is projected to settle at 4.6%, compared to the previous forecast of 4.3%.
Furthermore, the Federal Reserve expects headline inflation to conclude at 3.2% in 2023 and 2.5% in the following year, slightly lower than the previous projections.
While the current pause suggests a reprieve, the terminal fed funds rate for 2023 hints at further rate hikes on the horizon. In fact, market expectations indicate a 70% probability of another 25 basis point increase at the Fed’s next meeting in July.
Speaking at the post-meeting press conference, Fed Chair Jerome Powell reaffirmed the central bank’s unwavering commitment to curbing inflation and stressed that most FOMC members anticipate additional rate hikes soon. Powell acknowledged that the full effects of the Fed’s previous tightening measures are yet to manifest in the economy fully. As for the potential resumption of rate hikes at the July FOMC meeting, Powell emphasized that no final decision has been made.
Bitcoin plunges following Fed Reserve announcement
The previous aggressive series of interest rate increases have contributed to the bear market for Bitcoin, and the Fed’s recent decision to pause its tightening efforts has been viewed as a potential bullish catalyst for the cryptocurrency in 2023 and beyond. But, following the announcement, the cryptocurrency market witnessed a notable downturn, with Bitcoin plunging to $25,000. This decline and substantial drops in altcoin values indicate a broader trend of turbulence in the digital currency arena. Interestingly, these market movements appear unrelated to the recent decision by the U.S. Federal Reserve to maintain its interest rates.
As the leading and most widely traded cryptocurrency, Bitcoin serves as a barometer for the overall digital currency market. Its value experienced a significant dip, hitting a low of $25,000. This represents a notable departure from its previous highs, suggesting a bearish sentiment among investors. The synchronized downturn in altcoin values further emphasizes the interdependence of digital assets within the cryptocurrency market.
Surprisingly, the Federal Reserve’s decision to hold interest rates steady did not significantly impact the cryptocurrency market. Unlike traditional financial systems, the digital currency market operates independently and is influenced by a distinct set of factors. This unique characteristic might explain why macroeconomic decisions like those of central banks do not wield substantial influence over the cryptocurrency ecosystem.
The recent market downturn highlights the intricate nature of the cryptocurrency market. Bitcoin’s trajectory sets the tone for altcoins, and market dynamics within this evolving digital economy often diverge from traditional economic events. Investors and observers are urged to carefully navigate the complexities of this interconnected market and closely monitor the various factors at play.
