Bitcoin Could Jump 20% As Fed Keeps Interest Rates Steady
Federal Reserve Holds Interest Rates Steady; Forecasts Single Rate Cut by Year-End, Bitcoin Jumps 4%.
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.
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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 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 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.
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.
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.
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.
Jimmy Aki
Drawing from his background in economics, Jimmy has monitored blockchain development for years, firmly believing in its power to democratise finance. Beyond offering commentary on the latest crypto developments, he also spends his time analysing open-source codes of promising projects on GitHub. Jimmy holds Bitcoin and Ethereum.
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