How Will Crypto Market React if Fed Hikes Rates Above 400 bps?
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The Federal Open Market Committee (FOMC) of the Fed steers the economy through periods of inflation and recession as it uses quantitative tightening and reserve easing to sustain the money supply. Therefore, a rise in interest rates caused market volatility.
At the FOMC meeting on Thursday, the Federal Reserve discussed its strategy to combat inflation. The Fed aims to raise interest rates by up to 400 basis points by the end of 2022, so the 75 basis point increase is just the beginning.
The CPI showed 8.3% year-over-year inflation in August, although the Federal Reserve expects inflation to decline to 2% by 2025. By 2022 and 2023, the Fed Reserve hopes to reduce inflation to 5.4% and 2.8%, respectively.
According to reports, the Fed increased the benchmark interest rate by four times this year. The rates at the moment range from 2.25% to 2.50%.
According to the September CNBN Fed Survey, the Fed’s interest rate hike would last 11 months at its highest level. Brean Capital’s Chief Economic Advisor, John Ryding, made a comment in response to the poll.
According to Ryding, the Fed has now grasped how serious the inflation crisis is. The Fed’s rate of monetary tightening, in his opinion, is a “positive real policy rate.” The Fed is advised by the economist to raise the present rate by 5%.
According to the study, several economists, strategists, and fund managers—35 in total—believe the Fed may have gone too far with its tightening.
Bitcoin Hits the Downward Route
Earlier this month, Bloomberg Analyst Mike McGlone McGlone predicted that when interest rates rise, Bitcoin would do better than traditional stocks. But as of right now, Bitcoin does not appear to be trending in the direction indicated by Bloomberg.
In actuality, Bitcoin and other cryptocurrencies are still in a fall despite Bloomberg’s upbeat outlook. For instance, after the Fed’s announcement, BTC and ETH fell by 2% before rising again. The price of BTC is currently less than $19,000.
