The U.S. Federal Reserve has once again raised interest rates in an effort to curb inflation. The crypto market had a mixed reaction to the hike.
The interest rates reached the highest levels in 16 years after the central bank raised its benchmark rate a quarter percent to 5.1%.
Fed Hike Takes Rates to 16-Year High
All major stock indices sank soon after the Fed announced the rate hike. Crypto, however, showed a mixed reaction. In the last 24 hours, Bitcoin and Ethereum have gained 2% after a minor dip post-announcement. Other major altcoins remain muted on the hourly charts. The broader market largely looks unchanged after a short pullback.
The decision is the result of the still high inflation, which has slowed down in the past months. Consumer inflation in the U.S. decreased in March but remained at 5%. The year-over-year rate is significantly less than the 6% seen in February.
Experts interpret the 25 basis point increase, which brought interest rates to their highest level in 16 years, as a hint of a potential pause at the next meeting.
What’s Coming for the Markets?
Some analysts previously predicted that the Fed would pause its exercise to tighten monetary policy amid a banking crisis. However, in a recent review by the Board of Governors of the Federal Reserve System, the Silicon Valley Bank failure was pinned on ‘mismanagement.’ Moreover, the review called the U.S. banking system “sound and resilient, with strong capital and liquidity.”
Federal Reserve Chair Jerome Powell touched upon the crisis in a press conference following the interest rate hike. He said,
“The run on Silicon Valley Bank was out of keeping with the speed of runs through history. And that now needs to be reflected in some way in regulation and in supervision.”
However, economists are concerned that ten rate hikes in one year may cause the economy to slow down or even trigger a recession. Regional U.S. banks may be exposed to systemic risks as a result of the increase, according to banker Uday Kotak of Kotak Mahindra Bank. A recent report highlights that the uninsured depositors at the roughly 190 regional banks are still withdrawing money, stressing the system. This could be a possible reason the crypto markets didn’t take the news too badly.
Meanwhile, the Hong Kong Monetary Authority (HKMA) also increased interest rates on Thursday.
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As expected, the Federal Reserve raised the benchmark interest rate 25 basis points to a range of 1.75 percent to 2 percent. The keenly anticipated decision could be one of the most consequential in recent history as the USA reaches the end of the post-financial crisis era. Although the market initially reacted favorably to the news, with the Dow Jones Industrial Average and S&P 500 posting gains of 0.9 percent and 0.7 percent respectively, the broader crypto market has remained relatively muted.
After weeks of anticipation, the Federal Reserve hiked the key interest rate by 0.25 percent to a range of 1.75 percent to 2 percent. The central bank’s move was widely expected and largely priced into the markets. Interestingly, the decision was greeted positively by investors across the board, with the Dow Jones Industrial Average and S&P 500 both rising sharply for the day on the news.
By contrast, the broader crypto market has remained largely unresponsive to the news. Bitcoin, Ether and Ripple XRP, the three largest digital currencies, are all trading flat since the decision was announced. This is in sharp contrast to the run-up that occurred in the days leading up to the decision, when the crypto market posted gains of 10-15 percent.
It is not entirely surprising that the crypto market has remained muted post Fed rate hike. After all, the longer-term implications of the decision are still unclear. Although the immediate impact is positive for the stock market, the effect on economic growth is still uncertain and any gains could prove to be short-lived. It could also be argued that the decision will slow the flow of capital into the crypto market, as investors opt for the traditional asset classes offering higher returns.
In conclusion, the Fed’s quarter-point rate hike may not have had an immediate impact on the crypto market, but its longer-term implications remain to be seen. It remains to be seen whether the market can remain buoyant in the face of rising interest rates.
