Bitcoin prices are firm above $23k when writing on July 28 following the U.S. Federal Reserve (FED) move to hike interest rates by 0.75 bps, pushing overnight fund rates to 2.5 percent, and gradually tapering its holdings of government and mortgage-backed securities.
Taming Inflation
The move by the U.S. central bank to increase rates for the third consecutive follows their priority of cooling down an overheating economy and keeping inflation down.
Trackers reveal that the U.S. inflation rate is at a 30-year high, rising by 9.1 percent year-on-year, as per details of the latest CPI readings.
The FED closely tracks inflation. In an accompanying statement, they pinned the soaring numbers to the ongoing Russia and Ukraine conflicts. In their assessment, the war is “creating additional upward pressure on inflation and are weighing on global economic activity.”
Consequently, the U.S. central bank said its primary objective is to keep inflation at a rate of two percent over the long term.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. The Committee is strongly committed to returning inflation to its 2 percent objective.
Bitcoin Soars as the FED Remains Confident
Bitcoin, crypto, and the broader financial markets are reacting positively to the FED’s move. The market is especially responding to comments by chair Jerome Powell that the current regime is broadly in line with their estimates of neutral interest rates. The “neutral rate” typically refers to the optimum applicable interest rate where the economy runs at its potential without overheating or cooling down.
This statement is bullish for the markets. Most importantly, it may indicate that the FED may slow down on rate hikes as they revert to being “data-dependent”. Earlier, some analysts were projecting the central bank to increase interest rates by a whole percentage point in reaction to metrics that inflation was expanding at an unexpected accelerated rate.
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