Bitcoin, Ethereum Flat as Fed Issues 10th Consecutive Rate Hike

The Federal Reserve decided to raise its benchmark interest rate by 25 basis points on Wednesday. But it was the US central bank’s statement about a possible way forward that had markets waiting with bated breath.

To cool an overheated economy and tame rising prices, the Fed has now delivered a steady load of 10 consecutive rate hikes since March 2022. That brings Federal Funds rates to a range of 5% to 5.25%.

An increase of a quarter of a percent was widely expected, according to CME FedWatch tool, which earlier today showed investors gave the rate hike an 85% chance of happening.

“Inflation has moderated somewhat since the middle of last year,” Federal Reserve Chairman Jerome Powell said Wednesday during a press conference. “Nonetheless, inflationary pressures continue to run high and the process of getting inflation back to 2% has a long way to go.”

While Bitcoin was down slightly before the Fed’s move, it clawed back losses and settled around $28,634, according to CoinGecko. Ethereum also reversed course, pushing higher on the back of the Fed’s statement to $1,886, a 1.2% gain last day, according to CoinGecko.

So far this year, Bitcoin and Ethereum have gained roughly 70% and 50%, respectively, in part on the idea that the Fed may pause interest rate hikes soon or even cut interest rates later in the year. That’s because traders tend to avoid “risky” assets, such as BTC and ETH, when they expect the US Federal Reserve to continue its aggressive monetary policy to control inflation.

In the same period, the Nasdaq Composite has risen around 17%.

For several months, Powell hair so repeatedly that “rolling increases” would be needed to send inflation back to the Fed’s 2% target. Inflation rose to 9.1% in June 2022, the highest since 1981.

However, Powell’s tone began to shift in March after turmoil emerged in the US banking sector that saw lenders such as Signature Bank and Silicon Valley Bank topple.

Instead of saying that “in progress [interest rate] increases” would likely be needed, Powell said, “some additional policy expansion may be appropriate” at the U.S. central bank’s previous Federal Open Markets Committee.

Now the Fed is confronted with a potential debt ceiling crisis, where the US risks defaulting on its debt for the first time in history. Treasury Secretary Janet Yellen warned it could happen as early as June 1 if Congress can’t come to an agreement.