Bitcoin Down as Fed Hikes Rates by Another 75 Basis Points

The Fed’s funds rate is now 3.75% to 4%.

Fed Hikes Rates

The Federal Reserve has hiked interest rates by another 75 basis points. 

The U.S. central bank announced it would hike rates for the sixth time this year at Wednesday’s Federal Open Market Committee, bringing the funds rate to 3.75% to 4%.

The Fed was widely expected to maintain its hawkish stance in the lead-up to the meeting, particularly as inflation continues to pose challenges for the economy. The latest Consumer Price Index print showed inflation hit 8.2% in September, indicating that the Fed’s months-long tightening policy has done little to stop sharp price rises for U.S. consumers. 

The Fed has repeatedly signaled that it intends to curb inflation to 2%; Fed Chair Jerome Powell warned today that hikes would continue until they became “sufficiently restrictive.”

Interest rate hikes are the Fed’s main weapon for combatting high inflation rates. As the cost of borrowing money becomes more expensive when rates are high, people tend to sell riskier assets and fly to safety in dollars. The Fed’s interest rate hikes are the reason the dollar has shown strength against other currencies this year, and the biggest factor behind the $2 trillion rout in the cryptocurrency market.

Fed Chair Powell Speaks

In a statement on the rate hike news, Powell said inflation remained well above the Fed’s goal of 2%, and that the Federal Reserve was still committed to bringing it back down to these levels. Further increases in interest rates are expected. “We will stay the course until our job is done,” said Powell.

Markets reacted negatively to the update. The S&P 500 is down 2.5% on the day, the Nasdaq 3.39%, and the Dow Jones 1.55%. Bitcoin and Ethereum, meanwhile, dropped by 1.4% and 3.89% respectively. As the Fed has been hiking rates throughout the year and another 75 point raise was anticipated, the news was “priced in” relative to other similar news events. On previous occasions this year, the market has violently jolted following rate hike updates.

While today’s hike was expected, it’s speculated that the Fed could ease its tightening policy next month. Economists have predicted a 50-basis point hike, which could signal that the Fed is getting ready to slow down on tightening and flip to a dovish stance. In September, the Fed forecast a peak funds rate of 4.6% in 2023. Powell himself indicated the possibility of slowing the pace of the rate hikes in subsequent meetings.

As the Fed has been a source of pain for crypto and global markets this year, Bitcoin enthusiasts have long pondered on when the bank could change its stance. The Fed is the world’s most powerful central bank, and its hardline approach to curbing inflation has weighed pressure on crypto prices due to the digital assets space’s increasing correlation with traditional stocks. Bitcoin and Ethereum are both around 70% down from their highs of November 2021, while many other assets have fared much worse over the past year.

How a Fed Pivot Could Impact Crypto

Given that the crypto market’s moves are so dependent on the Fed, the likes of Paul Tudor Jones have suggested that a pivot could set the stage for a market surge. The billionaire hedge fund manager said last month that a pivot could lead to “a massive rally in a variety of beaten-down inflation trades, including crypto” but warned that a recession was likely in 2023. It’s worth noting that 2022 is something of an outlier in crypto history; until now, the asset class has mostly existed in a period of fiscal experimentation characterized by low interest rates. While a pivot could help prices rally in the short term, it may not be enough to help the cyclical market break new highs.

As it stands, the crypto market is suffering due to the bleak macro picture, with prices suppressed and exchange trading volumes at a fraction of their 2022 highs. The biggest event of the year in crypto, the Ethereum Merge, failed to bring momentum to the market in September, in large part due to the ongoing macroeconomic pressures. Time will tell how the Fed’s upcoming plans will impact the famously volatile space—and whether a pivot will have the impact believers are hoping for.

This story is breaking and will be updated as further details emerge. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other digital assets.