That Federal Reserve (FED) raised its interest rates by 75 basis points, bringing them to a range of 2.25 to 2.5%, in line with what most analysts expected.
“Recent consumption and production indicators have eased. Nevertheless, growth in employment levels has been robust in recent months and unemployment has remained low. Inflation remains high, reflecting pandemic-related supply and demand imbalances, rising food and energy prices, and broader price pressures,” the Fed wrote in the statement.
During his press conference, the president of the FED said, Jerome Powell, said “another unusually large hike may be appropriate at the next meeting” in September. However, he added that as rates become more restrictive, it will likely be appropriate to “slow the pace of increases.” Powell has also repeatedly clarified that FED decisions going forward will be “data-driven,” saying the central bank is “firmly committed to bringing inflation back to its 2% target.”
“The market reacted very positively to this increase, as most observers see this as a bold move that could help curb inflation more quickly. The crypto economy is also trending higher and outperforming stocks, thanks to the ‘increase in volatility,'” said Damian ScavoCEO of the algorithmic trading platform street beatin an emailed comment.
Mikkel MorchCEO of Digital Asset Investment Fund ARK36added that market participants were actually quite worried about the possibility of a 100 basis point increase.
“Given that the next hike will not take place until September, there may be some scope for a hike now – although that will depend on the strength of the dollar and the broader macroeconomic backdrop,” he said.
Furthermore, according to Mørch, if the FED ignores the growing indicators of a recession and continues its momentum, it will send a clear message to the markets that they cannot count on a change of course from the FED before the mid-term elections in November.
“A rate hike of 75 or perhaps even 50 basis points in September is likely to trigger a strong sell-off in risk assets,” he added.
Development of prices before Wednesday’s hike:
A few more, including an investment banking economist JPMorgan Chase, floated the idea that the Fed could raise interest rates by a full percentage point, which would be the largest rate hike in modern Fed history. The argument is that this would bring inflation under control, which last month reached 9.1% in the US.
And while inflation remains very high, economic growth in the US is slowing, putting the Fed in a difficult position. According to a Wall Street Journal survey of economists, the probability of a US recession in the next 12 months is now 49%.
According to the latest survey results, economists are significantly more pessimistic about the outlook for the economy in recent months. In June, 44% of economists surveyed said a recession was likely in the next 12 months, down from just 18% in January.
Comments ahead of today’s announcement, Marcus Sotiriouanalyst at the crypto broker GlobalBlockattributed the sell-off seen in the market on Monday and Tuesday this week to concerns over the Fed’s decision.
“Lead selling is a common occurrence throughout this bear market as many market participants choose not to buy when there is uncertainty about the course of action the FED plans to take,” said Mr. Sotiriou in an email comment.
Community QCP capitala Singapore-based crypto trading firm, also said in an update that a 100 basis point increase was now “barred from the market.”
“Every meeting [de la FED] this year the market saw an immediate positive reaction to the interest rate decision. We expect the same for this one,” the company wrote. It adds that there is “a strong likelihood” that Fed Chairman Jerome Powell will indicate that the central bank will return to a 50 basis point hike at its next meeting if growth slows and inflation eases.
“The markets will react positively to this,” they said, pointing out that the lows for BTC and ETH during this bear market will now form “a base” that will serve as support.
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