Fed Leaves Policy on Hold, Ending Long String of Rate Hikes

Last Updated: 15 June 2023

The U.S. Federal Reserve has decided to maintain its benchmark fed funds rate range, ending a streak of consecutive rate hikes. The decision comes as the central bank aims to assess the impact of its previous tightening measures on the economy. The anticipated announcement had minimal immediate effect on the price of bitcoin, which hovered around $26,000 at the time of the news.

A Pause in Monetary Tightening

In its recent meeting, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve opted to keep the fed funds rate range unchanged at 5.0-5.25%. The central bank’s decision was widely expected by the markets. The Fed acknowledged the need for additional time to evaluate the effects of its monetary tightening efforts on the economy.

Inflation Moderating but Remains Elevated

The Federal Reserve had embarked on a series of rate hikes over the past 15 months, with the objective of taming inflation, which had surged to an annual rate of over 8%. By March 2022, the fed funds rate had been raised incrementally over ten consecutive meetings, reaching its current level of 5.0-5.25%. However, inflation has gradually slowed down over the past year, with the May Consumer Price Index (CPI) report indicating a decrease to 4%, the lowest in two years. Although inflation remains above the central bank’s 2% target, the Fed has noted that the impact of monetary policy often takes time to manifest, and further declines in inflation are anticipated as the recent rate hikes work their way through the economy.

Considerations for Future Policy

The Federal Reserve emphasized that its decision on future policy firming would take into account the cumulative effect of monetary tightening, the time lag between policy actions and their impact on economic activity and inflation, as well as economic and financial developments. The central bank remains committed to returning inflation to its 2% target over time.

Bitcoin and the Fed’s Monetary Policy

The consecutive interest rate increases implemented by the Federal Reserve have played a significant role in the ongoing bear market for bitcoin. The cryptocurrency’s price has plummeted from its all-time high of nearly $69,000 in late 2021 to its current level around $26,000. The possibility of the central bank easing its monetary stance is considered one of the factors that could contribute to a bullish case for bitcoin in 2023 and beyond.

Updated Projections and Market Expectations

In addition to the rate decision, the Federal Reserve released its latest quarterly economic projections. Members of the central bank now anticipate a terminal fed funds rate of 5.6% in 2023, up from the 5.1% projected in March. The terminal fed funds rate for 2024 is expected to reach 4.6%, compared to the previous projection of 4.3%. The Fed’s revised projections indicate headline inflation ending at 3.2% in 2023 and 2.5% in the following year, slightly lower than the March estimates.

Market participants are currently pricing in a roughly 70% probability of another 25 basis point rate hike at the Fed’s next meeting scheduled for July. During the post-meeting press conference, Fed Chair Jerome Powell reiterated the central bank’s commitment to bringing inflation down to the target of 2%. He also mentioned that most FOMC members, despite the current pause, anticipate additional rate hikes this year. However, Powell emphasized that the full effects of the Fed’s previous tightening measures are yet to be fully realized, and no decision has been made regarding rate hikes at the July FOMC meeting.

Market Response and Outlook

Following the Fed’s rate decision, both the Nasdaq and S&P 500 initially experienced a decline but later rebounded into modest positive territory for the day. Meanwhile, bitcoin remained steady at around $26,000, reflecting a relatively muted response to the news.

The pause in rate hikes suggests a more cautious approach from the Federal Reserve as it monitors the effects of its previous tightening actions on the economy. While the central bank’s projections indicate a possibility of further rate hikes in 2023, the decision will depend on economic and financial developments in the coming months.

Investors and market participants will continue to closely monitor the Fed’s future policy moves and their impact on various asset classes, including cryptocurrencies like bitcoin. The easing of monetary tightening measures could potentially provide support to the cryptocurrency market, as it may alleviate some of the downward pressure experienced during the bear market.

In summary, the U.S. Federal Reserve’s decision to leave its benchmark interest rates unchanged marks the end of a string of consecutive rate hikes. The central bank seeks to evaluate the impact of its previous tightening efforts on the economy. Inflation has been gradually moderating, although it remains above the target level. The pause in rate hikes, alongside the Fed’s cautious approach, could have implications for the future trajectory of cryptocurrencies such as bitcoin. Market participants will continue to observe how economic and financial developments unfold and anticipate further updates from the Federal Reserve in the coming months.

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Investors closely following the Federal Reserve’s monetary policy decisions and their impact on various asset classes may consider exploring investment opportunities and staying informed through reputable online trading platforms and financial services providers. These platforms can offer a range of investment instruments and tools to help investors make informed decisions based on their individual goals and risk tolerance.

  • Ivan Brightly

    Ivan Brightly is a leading cryptocurrency analyst and author with over 5 years of experience in the blockchain and digital asset space. He previously served as a senior analyst at a major cryptocurrency hedge fund where he led quantitative research and trading strategy development.

    Ivan holds a Master's degree in Finance from the London School of Economics and a Bachelor's in Computer Science from Stanford University. He is frequently invited to speak at fintech and blockchain conferences worldwide on topics spanning cryptocurrency trading, blockchain technology, and the future of digital assets.

    Ivan's commentary has been featured in several major finance and technology publications including Forbes, Bloomberg, and CoinDesk. He is considered one of the most insightful voices analyzing new developments in the cryptocurrency and blockchain industry.

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