Bitcoin price reacts frantically as the US Federal Reserve raises interest rates by 50 bps

• The Federal Open Market Committee’s half-percentage point increase in the fed funds rate came after four months of 75 bps increases.
• The Federal Reserve also projects a further 75 bps increase in borrowing costs by the end of 2023.
• The bitcoin price shot up 3.39% on Wednesday at one point after the decision before falling to $17,822.

Bitcoin price, along with the rest of the crypto market, recorded a strong reaction after the meeting of the Federal Open Market Committee (FOMC) on Wednesday. The Federal Reserve’s decision to slow down the pace of interest rate increases was received positively, but the increase still did not go down well with most people.

Federal Reserve rate hike takes a hike

The Federal Reserve (Fed) announced on December 14 that the federal funds rate would be increased by 50 basis points (bps). The FOMC’s decision came in line with expectations, marking a departure from the past four months of a 75 bps increase. Commenting on the increase, the FOMC said,

“The committee seeks to achieve maximum employment and inflation of 2 per cent in the longer term. In support of these objectives, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent.”

The Federal Reserve is projecting a further 75 bps increase in borrowing costs by the end of next year in addition to a near standstill in economic growth.

The FOMC further stated that it remains committed to bringing personal consumption expenditures (PCE) inflation to the 2% target. According to the committee, the ongoing increases in the target range will be helpful in creating the right monetary conditions to bring inflation to 2% over time.

The FOMC’s federal funds rate hike came a day after consumer price index (CPI) data was released. The Bureau of Labor Statistics recorded a 7.1% increase for the month of November, which was lower than the expected 7.3%.

Bitcoin price makes a move

The Bitcoin price reacted to the FOMC’s decision, but did not take any particular direction. Following the announcement, prices surged, with BTC rising 3.39% to trade at $18,373. However, this surge was short-lived, as hours later the royal coin fell back to $17,822.

Total market capitalization of crypto

The rest of the crypto market reacted similarly as the total market capitalization increased to $848 billion before falling to today’s value of $824 billion. Going forward, positive signals are needed to drive recovery, as the crypto market has only improved by around 10% in almost a month.