During a press conference on June 15, Federal Reserve Chairman Jerome Powell announced that the Federal Open Market Committee (FOMC) raised interest rates by 75 basis points. According to Jerome Powell, the FOMC has taken this step in an effort to tackle the increased inflation, which has destabilised the US economy and markets, from bonds and stocks to cryptocurrencies. This is the highest level of interest rate raised by the Federal Reserve in the last 28 years.
Federal Reserve shared the Chairman Jerome opening statement on its official Twitter handle on June 16:
Read Chair Powell's full opening statement from the #FOMC press conference (PDF): https://t.co/KqX2HvrvD6 pic.twitter.com/plBgXA16ie
— Federal Reserve (@federalreserve) June 15, 2022
Following the announcements, the crypto market saw nominal gains with some upwards movements amid the recent crypto market crash. The news provided a breather to crypto investors who were suffering losses due to the constant bearish trends of the crypto market.
Bitcoin and other cryptocurrencies have reacted favourably to Fed decisions in the past, only to recover within 24 hours. Bitcoin, the world’s most valuable cryptocurrency by market capitalization, is currently trading at $21,982.69 at the press timing with 3.77% gain in the last 24-hours after declining to almost $20k on June 15. Because of the uncertainty surrounding Celsius and 3 Arrow Capital, the crypto market is currently extremely volatile.
The cost of borrowing will increase as interest rates rise, which will have a direct impact on many bitcoin investors. Currently, investors who use traditional finance to buy cryptocurrencies may encounter difficulties due to fluctuating borrowing costs.
Bitmex referenced Peter Schiff’s statement on inflation and interest rate hikes:
“The highest estimate I have seen for rate hikes is ten….. Ten rate hikes is nothing! Assuming all ten of these hikes are 25bps, after ten of them, rates will be 2.5%. Big deal! Inflation is 7.5%….. Even if the Fed raises rates to 2.5%, you have 5% negative real interest rates. You are not going to fight inflation, with 5% negative rates. There is no history that shows this, it is impossible and contradicts any type of economic school of thought. If the Federal reserve raises rates ten times and each one of those hikes is 25bps, by the time they get to 2.5%, real yields will be a lot lower than minus 5%, because by the time the Fed gets rates to 2.5%, CPI will be at least 10%, maybe more!”
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