Bitcoin fell and then rose after the announcement of the first interest rate increase in the United States since 2018. More volatility is expected in the crypto market.
The Federal Reserve (FED) of the United States approved this Wednesday the first increase in interest rates in more than three years, a measure of several phases to face economic inflation.
The central bank said in a statement that it will increase rates by 25 basis points, that is, to a range of 0.25% – 0.5% in relation to the current rate close to zero. This is the first time the Fed has raised its benchmark interest rate since December 2018. The move was part of the central bank’s monetary policy in response to the COVID-19 pandemic.
as you pointed out CNBCheto measure will correspond to an increase in the preferential rate and immediately will increase financing costs for many forms of consumer loans and credit.
Fed raises rates for the first time since 2018
The Fed also shared its quarterly economic projections, anticipating that rate hikes will come with slower economic growth this year.
Likewise, Fed Chairman Jerome Powell hinted at a press conference that an announcement on balance sheet reduction could come in May. He said the process could be the equivalent of another rate hike this year, as he quoted CNBC. At release official issued by the central bank reads:
Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher energy prices, and broader pricing pressures. The implications for the US economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.
The interest rate hike, which was approved by the Federal Open Market Committee, comes shortly after the latest US inflation reports pointed to record levels. The consumer price index (CPI), the most widely used indicator to track inflation, rose 7.9% in the past 12 months, according to a Labor Department report released March 10.
The figures represent the highest level in four decades and many economists anticipate that inflation will continue to rise. On Tuesday of this week, the US Department of Labor reported that the producer price index (PPI), which measures average changes in prices received by domestic producers, rose 10% in February to a historic high.
Bitcoin reacts volatile and rises to USD $41,000
The digital currency market experienced volatility following the announcements. Bitcoin it fell to $39,000 after touching $41,000 in the morning hours. Immediately, the main digital asset showed some recovery and is once again above USD $41,000, with an increase of 4% in the last 24 hours.
The main cryptocurrencies are also trading higher at the time of publication. ethereum registers an interday increase of almost 6% and is trading close to USD $2,800. The global crypto market capitalization is $1.8 trillion, up 3.9% in the last day.
The reaction of the cryptocurrency market was very similar to that of the stock market. As reported CNBC, stocks also initially fell after the FED announcement, but then recovered. The correlation between the price of Bitcoin and stock indices has remained tight in recent months. Faced with this trend, Bob Iaccino, chief strategist at Path Trading Partnerssaid to CoinDesk that since stock markets don’t tend to suffer too much during rate hike cycles, I was expecting the same for crypto.
However, the most general projection of analysts points to greater volatility for the price of Bitcoin and the rest of the market for the coming weeks, as the Fed continues to implement hikes and other monetary policies to curb inflation.
Article by Hannah Estefanía Pérez / DailyBitcoin
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