Bitcoin tanks after Federal Reserve announces 75-basis point rate hike

The US Federal Reserve announced a 75 basis point hike in interest rates on November 2, 2022, causing the crypto and stock markets to tank.

Major stock market indices fell after a scathing speech by Federal Reserve Chairman Jerome H. Powell. The Nasdaq fell 3%, while the Dow Jones Industrial Average fell 505 points. Crypto also declined, with Bitcoin falling 1.33% to $20,230.36, while ETH fell 4.18% to $1,513.97. Solana is down 5.86% after news of $30.49.

nasdaq price
Source: TradingView

Rate hikes are in line with forecasts

The 0.75% increase that takes interest rates to 3.75-4% fell in line with most analysts’ predictions, as the Fed acknowledged that its rate hikes would take some time to hit the economy. In the lead-up to the meeting, the odds were split between an increase of 50 and 75 basis points.

“We have both the tools we need and the resolve it will take on behalf of American families and businesses to restore price stability. Without price stability, the economy works for nobody,” Fed Chairman Powell said at the meeting.

Fed fulfills rate hike promise made in March 2022

The Federal Reserve has raised interest rates for the sixth time in a row with its latest announcement. Additionally, it is the fourth time in a row that it has raised rates by 75 basis points, as it tame inflation levels not seen since the 1980s.

Fed Rate Hike Crypto
Source: TradingEconomics

The Fed raised interest rates by 0.25% in March 2022, the first hike since 2018. In its policy meeting in March, it predicted six more hikes, which have since turned out to be true. In May, the central bank continued its policy of economic consolidation, announcing the first 0.5% increase since 2000. The remaining four hikes in June, July, September and now in November were all 0.75%.

There is evidence that the Fed’s actions have controlled record inflation levels. From June 2022, inflation was decreasing steadily, and by September 2022, it had declined to 8.2% from 8.23% in August 2022 and 9.06% in June 2022.

Inflation Level 2022
Source: Y-Chart

While these are signs of an economic slowdown, with inflation still far from the Fed’s 2% target, Powell’s nature seemed to suggest that investors were pre-empting a pause in bullish hikes.

“We anticipate that the ongoing increase in the target range will be appropriate to achieve a monetary policy stance that is sufficiently restrained to bring inflation back to 2 per cent,” he said in his speech.

He also noted that, while still possible, the road to soft landings is becoming narrower, and the FOMC may begin to reduce the level of its hike as early as December 2022 or the next meeting.

Powell’s speech sparked a reaction on Crypto Twitter, with macroeconomic analyst Sven Heinrich reacting to Powell’s indifference to the prospect of a recession.

Heinrich also said that Powell is mostly off on plans for a “soft landing”.

However, he acknowledged that the Fed is being more cautious.

Neil Dutta, an economist at Renaissance Macro, criticized the Fed’s decision, saying, “You can’t go 75 basis points every time the data doesn’t suit you.”

On a crypto note, technical analyst Murfsky predicted a sharp decline for bitcoin following the Fed announcement.

The next meeting of the Fed is on December 13-14, 2022.

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