Bitcoin Could Jump 20% As Fed Keeps Interest Rates Steady

Key Takeaways:

• The Federal Reserve left interest rates unchanged at the range of 5.25%-5.50%.
• The Fed's latest forecast predicts a single quarter-point rate cut by year-end, down from three cuts previously expected.
• Bitcoin surged 4% following the Fed's announcement.

The Federal Reserve's Interest Rates Decision

The Federal Reserve, often referred to as the Fed, is the central bank of the United States.

The bank's primary responsibilities include regulating and supervising banks, managing the nation’s money supply through monetary policy, and providing financial services to depository institutions, the government, and foreign institutions. 

The Federal Open Market Committee (FOMC) is a component of the Federal Reserve. The FOMC oversees open market operations and sets the federal funds rate, influencing economic activity.

Related: Donald Trump Endorses Bitcoin Mining, Wants ‘Made in the USA’ Bitcoin

This committee regularly reviews economic conditions and determines the appropriate monetary policy stance to achieve its macroeconomic objectives.

The Federal Reserve concluded its regularly scheduled two-day policy meeting by maintaining the short-term federal funds rate at the current range between 5.25% and 5.5%. This decision reflects the Fed's cautious approach to monetary policy amid ongoing economic uncertainties.

The #FOMC holds its benchmark rate range unchanged at 5.25-5.50% as expected.

The SEP shows the group's own rate forecasts for end of year 2024 have increased to 5.1% from 4.6% in March pic.twitter.com/TEjLKp7O5b

— John Kicklighter (@JohnKicklighter) June 12, 2024

The committee releases the quarterly Summary of Economic Projections (SEP), or “dot plot,” which shows FOMC members' future interest rate projections.

According to the latest projections, the Fed now expects only one quarter-point rate cut before the end of the year, a major shift from the three cuts predicted in March.

The dot plot shows the outlook for various FOMC members

0 rate cuts this year: 4 Members
1 rate cut this year: 7 Members
2 rate cuts this year: 8 Members pic.twitter.com/IloUltSNRS

— Benjamin Cowen (@intocryptoverse) June 12, 2024

The Fed's decision to scale back its rate-cutting projections was influenced by several factors, including persistently high inflation and a robust labor market. 

Meanwhile, this decision reflects the Fed's assessment of the current economic environment, which includes signs of improvement in the inflation situation. 

Consumer prices eased in May. Inflation rose 3.3% from a year earlier, slightly lower than April's 3.4% increase. 

This was also below economists' expectations. Fed officials noted some “modest further progress” toward their 2% inflation target. This indicates a more positive outlook compared to previous statements.

🇺🇸2024 June #FOMC Memo
✔️The Fed’s June meeting kept interest rates steady at 5.25-5.50%, stating the economy is stable and adjusting their inflation commentary from “a lack of” progress to “modest” progress.
✔️Dot Plot updates📈: 2024 rate forecast increased to 5.1% (from 4.6%),… pic.twitter.com/UUPiuBGDKj

— MacroMicro (@MacroMicroMe) June 13, 2024

Looking ahead, the Fed remains vigilant and ready to adjust its monetary policy stance based on incoming economic data. 

How Does This Impact Risk Assets Like Bitcoin?

Bitcoin's price surged over 4% in the past 24 hours after the Fed rates announcement but experienced a slight downtrend following the release of the US Consumer Price Index (CPI) data. 

The report showed a year-on-year (YoY) increase of 3.3%, slightly below the expected 3.4%. The CPI data is significant for Bitcoin as it often reacts to macroeconomic indicators like inflation. 

         BTC shot 4% after the Fed's interest rate remained unchanged

Historically, Bitcoin has shown a pattern of rallying after FOMC meetings, with analyst @CryptoJelleNL noting that these meetings have marked local bottoms and triggered rallies for Bitcoin. Based on his analysis, we could expect  BTC at $100K sooner rather than later. 

This ascending triangle has a target of ±$100,000.

Dips are for buying.#Bitcoin pic.twitter.com/bmLhzI8t9j

— Jelle (@CryptoJelleNL) June 13, 2024

Meanwhile, the data from Cryptoquant revealed a recent flow of more than 20,000 BTC to accumulating Whale addresses during the price decline, thus indicating that large investors are confident in Bitcoin's future price potential. 

$BTC: Are whales still buying?

“More than 20,000 #Bitcoin flow to whale wallets. It appears that the whales took advantage of yesterday’s correction in Bitcoin and accumulated additional quantities.” – By @abramchart

Read more 👇https://t.co/OAXOA5uBFz pic.twitter.com/KUDnP6BVyb

— CryptoQuant.com (@cryptoquant_com) June 12, 2024

For risk assets like Bitcoin, declining inflation and the prospect of lower interest rates are major pointers for an imminent rally. 

Lower inflation reduces the risk of value erosion for assets like Bitcoin, which are seen as hedges against inflation. Additionally, lower interest rates make alternative investments like Bitcoin more attractive compared to traditional assets, as they offer potentially higher returns.