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The Federal Reserve has reached its decision on the next interest rate hike. The Federal Open Market Committee agreed to a 75 bps interest rate hike with a 12-0 unanimous vote. Both Bitcoin and Ethereum, along with the rest of the crypto market, fell after the announcement of this Fed hike. However, since the hike is likely already priced-in, the market has bounced since.
The target interest rate is now in the range of 300-325 bps. The Fed also anticipates future interest rate hikes to be the appropriate course of action. The Consumer Price Index for the month of August revealed that the inflation is still worse-than-expected.
How The Fed Hike Will Affect Crypto
The Federal Reserve is responding to the soaring inflation levels by interest rate hikes and quantitative tightening. Higher interest rates are not ideal for the risk assets market. An unusually large hike of 75 bps in June led to a bloodbath in the crypto market.
However, it is likely that this interest rate hike will not have a similar impact. It is possible that this hike will be much similar to the one in July. Since a 75 bps hike was already priced-in, the markets rallied after an initial slide.
After the Consumer Price Index of August showed an 8.3% YoY inflation, the markets priced in both a 75 bps and a more hawkish 100 bps hike. Bitcoin and Ethereum reached new lows as the dollar strengthened. Thus a 75 bps hike will not result in a new selloff. Indeed, after sliding a couple of points after the announcement, crypto prices have rallied again.
What The Future Hold For Crypto
The crypto market is strongly correlated with the general stocks and is therefore dependent upon macroeconomic conditions. The Federal Reserve believes that future hikes are the likely course of action. However, experts believe that recession might dictate the Fed’s future monetary policy rather than inflation.
Other threats to the economy such as global financial destabilization may force the Fed to slow its hawkish stance.
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