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Exploring the Ripple Effect: How Fed Policy Shapes the Crypto Landscape
With the advent of cryptocurrencies, it has become increasingly important to understand how these monetary policies influence the crypto market.
In the current financial landscape, the Federal Reserve's decisions regarding interest rates significantly impact the global economy.
This report aims to delve into the connection between Fed policy and the cryptocurrency industry, examining the ripple effect of interest rate hikes and how they shape the crypto landscape. By exploring the interplay between traditional finance and the emerging world of cryptocurrencies, we can better understand the future direction of both markets.
Federal Reserve's Monetary Policy
The Federal Reserve recently raised interest rates by a quarter of a percentage point, marking the beginning of a series of smaller rate hikes. The US central bank cited Russia's conflict in Ukraine, persistent inflation, and the need to achieve maximum employment as reasons for the slower pace of rate hikes.
The Fed's eighth consecutive rate increase aims to curb the highest inflation over four decades.
The Federal Open Market Committee (FOMC) members anticipate that ongoing increases in the target range will be necessary to return inflation to 2 per cent over time.
Crypto Market Reaction
Bitcoin and ether fell slightly, declining by 0.2% and 0.3%, respectively, on the news of the Fed's interest rate hike.
The S&P 500 and Nasdaq Composite indexes also declined, losing about 0.7% and 0.5%, respectively.
Analysts remain concerned about the possibility of a soft landing despite the relatively good economic data.
Craig Erlam, senior market analyst at Oanda, stated that there is growing evidence that rate hikes have cooled the economy, inflation, and the labour market. However, the Fed's belief on whether it has done so enough remains uncertain.
Tom Essaye, the founder of Sevens Report Research, believes that disinflation remains positive for the market, but it should not be expected to be a linear process.
Federal Reserve's Future Plans
The December meeting of the FOMC estimated that interest rates would ultimately reach between 5% and 5.25% at a median level. These estimates will be recalculated in March.
Powell stated that there is still uncertainty about the final rate level, which could be higher than what is currently estimated.
Analysts advise traders not to bet on a complete Fed pivot at this stage, as the Fed will continue to monitor macroeconomic conditions.
A developing story…
Despite some initial negative reactions, the long-term effects remain uncertain and will continue to be closely monitored by our traders and analysts alike.