The Fed, Jerome Powell, interest rates and crypto

Fed Chairman Jerome Powell made his decision to raise interest rates by 0.25%: how did the crypto market react?

This move was widely expected and is another step in the Fed’s strategy to contain inflation.

The motivations of Jerome Powell and the Fed and the impact on crypto

Inflation is an economic phenomenon that occurs when the prices of goods and services rise steadily over time.

When inflation is high, people may struggle to buy and businesses may struggle to manage their costs. The Fed is responsible for controlling inflation in the US and keeping the economy in a stable situation.

Raising interest rates is an important tool the Fed uses to control inflation.

When the Fed raises interest rates, it makes it more expensive to borrow money, which means people and businesses can spend less. This in turn can help to reduce inflation because it counteracts the demand for goods and services.

The Fed’s decision to raise interest rates was partly motivated by the performance of the US economy. The US economy has been growing for several years, and the unemployment rate is at its lowest level since 1969.

This has led to increased demand for goods and services and driven up prices. The Fed is trying to prevent inflation from getting too high, which could hurt the economy in the long run.

However, there are also some risks associated with raising the interest rate. Higher interest rates can, for example, make it more difficult for companies to borrow money for investment and growth.

This can reduce long-term economic expansion. In addition, rising interest rates can make it more expensive to borrow for people who are already struggling to meet their debts.

The Fed appears to be aware of these risks and has acted cautiously in raising interest rates.

The increase of 0.25% is relatively modest, and the Fed has signaled that it may be appropriate to raise interest rates further in the future. This may depend on the performance of the US economy and inflation.

In addition, the Fed has also announced that it will gradually reduce its portfolio of assets, which it accumulated during its post-financial crisis policies to stimulate the economy.

This can have a similar effect to raising interest rates, as it will reduce the amount of money in circulation.

The Fed’s decision to raise interest rates appears to have been well received by the financial markets. However, investors seem to have understood the need to contain inflation, and the Fed has signaled that it has a clear plan to deal with the situation.

However, there are also some concerns about the impact of rising interest rates on several developing countries and the global economy.

When the US raises interest rates, it becomes more attractive for investors to move their money to the US, which can lead to currency weakness in developing countries.

In addition, higher interest rates in the United States may increase the cost of debt for countries that have borrowed in dollars, making it more difficult for them to repay the debt.

For now, as expected, the crypto market has reacted with a sudden price drop. It remains to be seen whether this descent turns out to be a physiological correction or the last moment of the bear market.

The statements of Chairman Jerome Powell

The decision was taken despite the recent tensions in the banking system, which, according to Fed Chairman Jerome Powell, do not put depositors’ savings at risk.

Powell assured that the US banking system is solid, resilient and well capitalized and that the central bank has the tools to protect deposits and maintain the safety of the banking system.

However, recent difficulties that have emerged at some small banks prompted the Fed to speculate on a pause in its aggressive rate hike campaign.

But after a “strong consensus” a mini-tour was agreed to demonstrate a commitment to fighting inflation which remains “too high”.

Powell stressed that the road back to 2% inflation remains long and bumpy, and that further increases in the cost of money may be necessary.

The Fed expects to end the year with interest rates averaging 5.1%, but could raise them even higher if necessary. By the end of 2024, the cost of money is expected to be around 4.3%.

The Fed’s decision disappointed Wall Street, which had hoped for an end to the bullish cycle.

Powell and the banking crisis

Nonetheless, Powell explained that the banking crisis has a disinflationary effect that has yet to be deciphered and could slow down the economy, which many analysts say is either in recession or already in recession.

“The path to a soft landing still exists, let’s try to find it”

Powell said.

The Fed’s decision triggered a strong reaction in the stock market. After the announcement, stock markets, which had welcomed the mini-tightening, experienced a sharp reversal, with hopes of an end to the bullish cycle fading.

However, Powell believes that the banking crisis has a disinflationary effect that can slow down the economy, but which can also help the Fed achieve its goal of keeping inflation down.

Despite the focus on the banking crisis, the Fed also revised its forecasts for GDP in 2023 and 2024 slightly downwards. Unemployment, on the other hand, is expected to be 4.5% this year. In general, the Fed believes that the path to a soft landing for the economy still exists and must be found.

The banking crisis has revealed some shortcomings in the supervision of the American banking system. Silicon Valley Bank, with more than $100 billion in assets, was under Fed supervision but suffered a failure that raised some criticism of the central bank’s ability to prevent such incidents.

Powell opened up the possibility of an external investigation into the Fed’s supervision of SVB and acknowledged the need for a tightening of regulations and supervision of banks.