(Source-Federal Reserve)
The Federal Reserve opted to maintain its key interest rate unchanged on Wednesday, a decision that reverberated through the crypto market as investors grappled with ongoing inflation concerns.
Fed’s Stance on Inflation
Federal Reserve Chairman Jerome Powell, adopting his customary cautious tone, addressed reporters, acknowledging the challenges in achieving the 2% inflation target. While Powell indicated that a rate hike was unlikely for the next policy move, he emphasized the need for sustained progress toward the inflation goal before considering any reduction in the target range.
Market Response
In response to the Fed’s announcement, Bitcoin and Ethereum experienced minor declines over the past day, with Bitcoin dropping by 4.6% to $57,600 and Ethereum slipping by 1.3% to $2,945, according to CoinGecko. Despite this downward trend, both cryptocurrencies witnessed slight upticks in the hour preceding and following the rate decision.
Inflation Concerns
Persistent inflation concerns have weighed on investor sentiment, particularly amid fears that the Fed may delay rate cuts amidst stronger-than-expected inflation and wage growth figures. These apprehensions have intensified against the backdrop of ongoing legal battles, such as Ethereum’s regulatory status in the U.S., and shifting rate expectations.
Fed’s Policy Outlook
While inflation has moderated from its peak in 2022, it remains above the Fed’s target of 2% annually. Powell’s remarks underscored the Fed’s commitment to monitoring economic data closely, indicating that any adjustments to interest rates would be contingent upon achieving sustained progress toward the inflation target.
Impact on Crypto Markets
The prospect of prolonged higher interest rates has dampened sentiment in both traditional and crypto markets, with investors closely scrutinizing the Fed’s policy stance. Despite initial expectations for multiple rate cuts in 2024, market participants have tempered their outlook, anticipating fewer rate cuts or none by year-end.
Market Volatility
Amidst evolving rate expectations, Bitcoin experienced its worst month since November 2022 in April, shedding 14% from its March highs to trade around $60,000. Powell’s acknowledgment of the prolonged inflationary pressures suggests that rate adjustments may be further delayed, with the Fed maintaining its current stance to address economic risks effectively.
The Federal Reserve’s decision to leave interest rates unchanged has sent ripples across financial markets, with investors navigating the evolving inflation landscape and its implications for monetary policy. As uncertainties persist, market participants remain vigilant, awaiting further guidance from central banks amidst ongoing economic challenges.
Also Read: Federal Reserve Chair Jerome Powell Cautious on Rate Cuts amid Inflation Concerns
