Bitcoin and other major cryptocurrencies experienced wild price fluctuations as the Fed announced a 50bps (0.5%) rate hike on Wednesday. The announcement by Fed Chair Jerome Powell saw the crypto market lose gains accumulated a few hours before the decision. Bitcoin’s price topped $18,387 before settling slightly below $18,000 following the news.
The Fed funds rate is the interest rate banks charge each other to borrow or lend excess reserves overnight. Fed rate adjustments are used to fight inflation in the market by reducing the demand for goods and services and increasing the cost of borrowing money.
The previous Fed rate was at 3.75% to 4.0% before the declaration on 14th December. The Fed has hiked rates for three consecutive sections, each causing a crypto-market downturn. The recent rate hike puts the hike at a median of 4.4% for 2022.
The Fed had earlier stated it would continue to hike rates despite evidence that inflation is slowing. The CPI report on the 13th of December also proved the lowering rates of inflation in the US with a 7.1% CPI rate as against the expected 7.3%.
Hope Glims for Crypto Market as Inflation End Becomes Visible
Following the US CPI release, major cryptocurrencies saw a surge, with Bitcoin jumping over 4% and currently trading at $17,800 and Ethereum similarly making good movements with over 7% increment. All attention was shifted to Fed rates, and after its release, the market saw price fluctuations.
According to Fed Chair Jerome Powell, lower rates are expected to start kicking in from 2023, with the target rate at 5.38%. An increase of 50 basis points each early next year will do the trick. The Fed officials saw a 0.5% GDP growth at the end of 2022 and estimated 0.5% for 2023, 1.6% for 2024, and 1.8% for 2025.
The new rate signals hope for the crypto market, which has recently been subject to downturns. The market has generally struggled due to the unstable world economy, with inflation and interest rate hikes hitting hard on investors. With a fresh glimpse of hope, the crypto winter is set to subside for some time.
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