The US Federal Reserve (Fed) official believes that inflation remains at a problematic level. How would the cryptocurrency market react if the Fed raises interest rates in May?
With the upcoming FOMC meeting on May 3 looming, discussions about the impact on cryptocurrency markets are starting again. The Federal Reserve raised interest rates by 0.25 basis points in March. After nine consecutive strong interest rate hikes, the current rate stands at 4.75 – 5%.
Inflation is still too high: Fed official
And while there was some expectation of no increase, a recent statement from John Williams, President of the Federal Reserve Bank of New York, quashed it. according to Wall Street JournalHe said: “Inflation is still very high, and we will use our monetary policy tools to restore price stability.”
The US Consumer Price Index (CPI) for March came in at 5% year-on-year growth, which is still far from the Fed’s target of 2%. According to CME Group, there is an 80.2% chance of a 25 basis point rate hike in May.
How will Bitcoin react to a rate hike?
Neil Cochreti, crypto analyst behind YouTube channel In crypto terms, you believe that the result of a 25 basis point increase is unlikely to cause a significant drop in the price of Bitcoin. He told BeInCrypto:
If the outcome is as expected by the market, then there shouldn’t be any major drop in bitcoin price as it is currently, the $28k area is a strong support with $26k serving as the next support.
So, unless there is any significant announcement of a 50bp+ rate hike, Bitcoin price should more or less remain within these ranges. The worst case scenario for Bitcoin depends on the price at the time of the announcement as the chances of a critical support near will increase to unload a ripple effect. But even at 50 bps, I don’t expect bitcoin to go above 20k.
Give the world a chance to catch up
The Fed’s sharp rate hike to more than 4.75% in one year had serious repercussions. While a lot too blame The recent failure of a number of banks regarding the Fed’s rapid increase in interest rates.
Claudia Sam, a former executive director of the Federal Reserve, believes the agency should pause interest rate hikes and give the world a chance to catch up.
she Tell Barrons, “The Fed raised interest rates by 4.75 percentage points in the span of one year—the fastest increase since (former Fed chair Paul) Volcker raised rates in the early 1980s. Powell was clear that the economy was embarking on an anti-inflationary cycle.” .
She adds: “Moving too quickly could risk a strong recovery in the labor market. This is not a risk the Fed should take.”
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