The Federal Reserve didn’t surprise many by keeping its main interest rate unchanged at the Federal Open Market Committee Meeting (FOMC) on Wednesday.
This decision, though, might not be what some investors in cryptocurrencies and stocks were hoping for. Earlier that day, Bitcoin’s price had fallen sharply by 6%.
Bitcoin Price Reacts Positively to Fed Announcement
Within just five minutes of the announcement made by the Federal Reserve, Bitcoin’s price showed a notable increase, rising from $57,300 to $57,700. This surge came after the central bank decided to maintain its interest rate at the Federal Open Market Committee Meeting (FOMC). Additionally, the Fed revealed plans to decrease the pace of selling US Treasury securities, reducing the monthly redemption cap from $60 billion to $25 billion starting in June.
Market expectations prior to the meeting largely anticipated the Fed to keep the interest rate unchanged at 5.25%, with potential cuts possibly occurring in Q4. However, the central bank’s statements echoed concerns in the market about the need to prolong higher interest rates to curb nationwide inflation, which has persisted above 3%.
The Fed’s position on interest rates was clear: they stated that a reduction in the target range wouldn’t be appropriate until they have more confidence that inflation is steadily moving towards the desired 2%.
Despite these concerns, the economy continues to demonstrate resilience. Data compiled by Bloomberg Intelligence indicates that an impressive 81% of S&P 500 companies that have reported their Q1 earnings have surpassed expectations.
The relationship between Bitcoin’s price and central bank policies, as well as macroeconomic liquidity conditions, is well-documented. Analysts like BitMEX co-founder Arthur Hayes speculate that Bitcoin could soar past $100,000 as central bank balance sheets continue to expand, reflecting the ongoing influence of these factors on the cryptocurrency market.
BTC / USD. Source: TradingView
Market Expectations for Rate Cuts in the United States
Market participants are eagerly anticipating potential rate cuts, hoping for increased funds to flow into specific assets. Analysts are closely monitoring the present outlook in the United States, with expectations for the first interest rate cut announcement to possibly occur in Q3.
Leading investment banking firms such as JP Morgan and Goldman Sachs are eyeing the U.S. Fed Meeting in July 2024 as a potential window for interest rate cuts. This forecast aligns with the current hawkish policies being implemented by the world’s largest central bank and is influenced by persistent inflation levels exceeding the 2% threshold.
However, predictions vary among financial institutions. Wells Fargo suggests that the first rate cut from the US Fed Meeting might happen in September, while Bank of America expects it to occur in December. Ruslan Lienkha, Chief of Market at YouHodler, anticipates that rates will remain unchanged in the upcoming week as the Federal Reserve continues to closely monitor inflationary factors.
Impact of US Fed Meetings on the Crypto Market
The cryptocurrency market often mirrors the movements of stocks following US Federal Reserve Meetings, experiencing a similar trajectory. A notable boost is anticipated in the crypto market if the Federal Reserve announces a rate cut. This aligns with historical patterns where such announcements have positively influenced the sentiment among investors, leading to increased activity in cryptocurrencies.
Conversely, if the Federal Reserve decides to hike interest rates, investors are expected to withdraw funds from riskier assets, including cryptocurrencies. Such a move could potentially impact the crypto market negatively, as it would signify a shift towards safer investment options in response to the central bank’s monetary policy decisions.
In essence, the direction of interest rates set by the Federal Reserve has a significant influence on investor behavior in both traditional stock markets and the cryptocurrency space, shaping market dynamics and sentiment accordingly.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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