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US Fed Triggers Another 75 Basis Points of Rate hikes as Record Inflation, Bitcoin and Ethereum Jump

The US Federal Reserve (Fed) raised interest rates by 75 basis points, to about 2.25 to 2.5%, in line with what most analysts expected.

“Indicators for spending and manufacturing have softened recently. However, employment growth has been strong in recent months and unemployment remains low. Inflation remains high, reflecting pandemic-related supply and demand imbalances, higher food and energy prices, and broader price pressures,” the Fed wrote in its announcement of the rate hike.

The price of both bitcoin (BTC) and ethereum (ETH) immediately increased following the announcement. An hour after the announcement, BTC was up 4.5% to $22,590, while ETH was up 5.5% to $1,580. Shares also rose, with the broad S&P 500 index up 1% since the announcement and up 2.2% on the day to trade just above the key 4,000 level.

During his press conference, Fed Chairman Jerome Powell said that “another unusually large increase may be appropriate at the next meeting” in September. However, he added that as rates become constrained than, it might be appropriate to “slow down the rate of growth.” Powell has also repeatedly made clear that the Fed’s future decisions will be “data-driven” and said the central bank is “strongly committed to bringing inflation back to its 2% target.”

The market reacted very positively with a 75 basis point increase, as the economy sees this as a bold move that could help slow inflation faster. The crypto economy also went up, outperforming. versus stocks, thanks to higher volatility,“.

Damian Scavo, CEO of algorithmic trading platform Streetbeat, said in an emailed comment.

Mikkel Mørch, Managing Director at ARK36 Digital Asset Investment Fund, added that market participants were actually quite scared about 100 basis points and breathed a sigh of relief when the gains matched the consensus. favorable.

“As the next rally doesn’t happen until September, there could be some upside for now – although that will depend on dollar strength and the broad macro environment,” he said. bigger,” he said.

Also, according to Mørch, if the Fed ignores the growing evidence of a recession and continues on its hawkish course, it will be a strong signal to markets that they cannot trust the Fed to turn around. before the midterm elections in November.

So a 75 or even 50 basis point hike in September will likely trigger a sharp sell-off in risk assets,” he added.

This time around, analysts had widely expected the Fed to raise rates by 75 basis points, just as it did at the Fed’s previous meeting in June. The same was expected by the majority of investors, with the CME derivatives exchange’s FedWatch Tool prior to the announcement showing a 76% probability that the Fed will announce another 75-point rally.

Federal Funds rates before Wednesday’s hike:

Federal Funds rates before Wednesday
Federal Funds rates before Wednesday.

Still, some, including a chief economist at investment bank JPMorgan Chase, have floated the idea that the Fed could raise rates by up to one percentage point, the biggest rate hike in history. modern history of the Fed. The argument made for that is that it would be helpful in curbing inflation, which last month hit 9.1% annually in the US.

And despite sky-high inflation, economic growth in the US is cooling, putting the Fed in a difficult position as it raises interest rates. According to a survey of economists by the Wall Street Journal, the probability of a recession in the US in the next 12 months is 49%.

The latest survey results show economists have turned to a more pronounced slowdown in the economy in recent months. In June, 44% of economists surveyed said the possibility of a recession in the next 12 months, while only 18% said the same in January.

Judging from a commonly accepted definition of a recession (two quarters of GDP growing negative in a row), the US could already be in a recession, though we’ll have to wait until the GDP numbers Quarterly is published on Thursday to know for sure.

Commenting ahead of today’s announcement, Marcus Sotiriou, an analyst at crypto brokerage GlobalBlock, attributed the sell-off in the crypto markets on Monday and Tuesday of this week due to fear of what the Fed will do. can do.

Selling in anticipation of this event is typical during this bear market, as many market participants choose not to buy when uncertain about the actions the Federal Reserve will take,” Sotiriou said in an email commentary. the state has a plan to do so,” Sotiriou said.

He added that we “could see” a rally in the crypto market if the Fed hikes rates in line with expectations, as bitcoin in particular has tended to reverse course after rate announcements this year whenever the announcement was as expected.

Also commenting ahead of today’s hike, the Singapore-based crypto trading firm QCP Capital said in an update that a 100-basis point hike has now been “priced out by the market.”

“Every [Fed] meeting this year has seen a positive immediate market reaction to the rate decision. We expect the same for this one,” the firm wrote. It added that there’s “a good chance” Fed Chair Jerome Powell could indicate that the central bank will revert to a 50-point hike at its next meeting if growth slows and inflation eases.

“Markets will react positively to this,” they said, while pointing to the lows for BTC and ETH during this bear market as “a base” that will now act as support.