The Fed’s rate hike is hitting the markets. Notably, XRP’s price took a deep dive almost as quickly as it had picked up yesterday.
The Federal Reserve (Fed) has raised the interest rate by 25 bps to 5%, the highest level since June 2016.
During the FOMC meeting on March 22, Jerome Powell, the Fed Chairman asserted that Fed acknowledged the recent turmoil in the banking sector and prompt actions were necessary to stop spreading contagion.
However, curbing inflation remains Fed’s priority; and the agency will stick to this goal until the inflation rate reaches 2%.
The Fed evidently has no plan to cut interest rates but it will make adjustments based on the bank’s situation, rather than continuously raising per original plan.
No Clear Direction
Powell added that the Fed may consider tightening lending standards as additional measures. But if it’s ineffective, Fed will return to raising interest rates.
With the US facing the risk of a crisis in the banking industry after the collapse of three major banks including Silvergate, Silicon Valley, and Signature, observers have come to the conclusion that the Fed is under pressure and could not resume interest rate hikes to control US inflation.
Recent bank bailouts prompted speculation that the Fed will slow down interest rate’s increase. However, many experts still bet on the likelihood that the Fed would continue to raise interest rates despite the banking turmoil.
Easy Money for Some
Last week, the Federal Reserve injected an additional $300 billion into the US financial system to enhance liquidity. This action has led many to speculate that the era of quantitative tightening is either over or, at the very least, temporarily paused.
At the same time, US inflation in February 2023 experienced its eighth consecutive month of decline, dropping to its lowest level since November 2021 at 6%. However, it remains above the Federal Reserve’s 2% target.
Crypto Market Goes Up And Down
Following the Fed’s recent news, the crypto market experienced a sharp decline. According to CoinGecko data, Bitcoin briefly dropped below $26,600 before bouncing back to $27,000.
Despite this setback, Bitcoin has enjoyed significant gains amid the current macroeconomic uncertainty, having risen 37% since mid-March and repeatedly hitting new highs in 2023.
Although the Bitcoin price has fallen after the Fed announcement, some analysts remain bullish on its future prospects, citing the recent bankruptcies of Silicon Valley Bank (SVB) and Signature Bank as possible catalysts for a price surge.
Bitcoin’s recent bull run is a result of breaking out from the longest accumulation period in its history. This is a testament to the crypto market’s current strength and the confidence of its participants.
Apart from macroeconomic factors, the crypto market is facing negative sentiment from the US government. Recently, the White House has criticized the industry, citing the potential risks it can pose to users.
According to the White House, crypto does not offer any significant benefits in terms of intellectual property, financial value, or payment tools that are widely used in traditional finance.
The government also expressed concerns about stablecoins becoming a popular payment method, as holders may not be able to convert their assets back to cash if they cannot find a buyer.
This move by the White House may indicate implicit support for the FedNOW and CBDCs, which could help strengthen America’s financial infrastructure.
However, if the government follows through with its criticism, it could have a negative impact on the crypto market.
In related news, on the same day as the interest rate confirmation, the US Securities and Exchange Commission (SEC) reportedly accused Tron founder Justin Sun of fraud and market manipulation.
The agency also issued a Wells Notice to Coinbase, warning of potential violations of federal securities laws.
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