Bitcoin Rises After Fed Rate Hike
Prices of most cryptocurrencies rose on Wednesday after the Federal Reserve raised interest rates by 0.75 percentage points in a continued effort to ease inflation.
The most popular cryptocurrency, bitcoin, was up 1.5% at $19,365 at the last check, while ethereum was down 0.2% at $1,353, according to CoinDesk.
Bitcoin and Ethereum also fell slightly before reversing after Federal Reserve Chairman Jerome Powell spoke about the latest rate hike, with a largely muted reaction from crypto investors.
The main increase in valuation was Litecoin’s 4.1% rise to $54.46.
The U.S. Federal Reserve raised interest rates sharply for the third time in a row on Wednesday, raising its target rate by 0.75 points in its most aggressive tightening on record.
Powell said that despite the weaker forecast for the world’s largest economy, he sees “sustained growth” in the coming months.
“The road has narrowed significantly due to events beyond our control,” he said. “We try not to make mistakes. The risk of doing too little … just adds to the cost of dealing with it later.”
Bitcoin has endured a period of turmoil since hitting an all-time high in November, with its value down more than 72%.
Jodie Gunzberg, managing director of New York-based CoinDesk Indices, told TheStreet that the sharp inflation rate has had a negative impact on stocks and cryptocurrencies and the wider economy, including wages and food, transportation and housing costs.
“This is largely negative for stocks and most assets, as it negatively impacts income, the lower present value of future returns on stocks (as they are discounted at higher rates), and the money and credit to buy investments decrease,” she said.
Today’s rise in bitcoin price follows recent declines amid reports that the consumer price index rose 8.3% year-over-year in August.
high inflation rate CoinDesk Bitcoin Price Index It fell 15.3% and was 2.5 times the S&P 500.
“The previous drop in bitcoin prices likely reflects expectations that the Fed will respond to high inflation by raising interest rates sharply this week, which typically strengthens the dollar,” Gunzberg said.
Since BTC is denominated in U.S. dollars, a rising U.S. dollar is a headwind, “even more so now given the economic situation in Japan and Europe,” she said. “As this has all been going on for a while, it’s not surprising that there has been little reaction to this Fed meeting.”
Rising interest rates don’t just reduce the money and credit available to buy investments. Rising interest rates in the U.S. have further boosted demand for dollars, as Japan does not appear to be raising rates despite inflation. The European economy is battling high inflation and a recession triggered by Russia’s attack on Ukraine, which has sent energy prices soaring, she said.
“As long as the dollar continues to climb, it could be a headwind for cryptocurrencies,” Gunzberg said.