The U.S. Federal Reserve has maintained its current monetary policy by leaving its benchmark interest rate range at 5.25% to 5.50%. This decision was widely anticipated by market participants. However, the central bank also projected a higher interest rate for next year, with expectations of around 5.1%, a significant increase compared to the previous prediction of 4.3% in June.
Additionally, Fed officials forecast stronger economic growth for this year, expecting a 2.1% real GDP increase, compared to the previous forecast of 1% in June. The statement released by the Fed emphasized the consideration of various factors, including the cumulative tightening of monetary policy, the lag effect of monetary policy on economic activity and inflation, and economic and financial developments while determining the appropriate extent of additional policy firming.
Following the announcement, Bitcoin’s price remained relatively stable around $27,200. However, it later experienced a 1% decline to $26,900 after Fed Chair Jerome Powell mentioned in a press conference that the central bank would implement more rate hikes if the economy continues to perform better than expected.
Powell also indicated that the majority of Fed members believe “one more rate hike is more likely than not appropriate” during the remaining two Federal Open Market Committee (FOMC) meetings. He acknowledged the positive direction of recent inflation trends, describing the last three months’ readings as “very, very good.”
The next FOMC policy meeting is scheduled for November, and market participants now predict a 71.5% chance of no rate change at that meeting. Furthermore, CME’s FedWatch tool indicates a 53.4% probability of keeping rates at the current level until the end of the year.
The Fed’s decision to keep rates higher for 2024, as projected, surprised many analysts. The anticipation of slower rate cuts and delayed future rate cuts has led to mixed reactions. Michael Silberberg, head of investor relations at AltTab Capital, expressed optimism in an emailed note, stating, “It is hard for us to take today’s announcement with too much optimism.” On the other hand, crypto and macro analyst Noelle Acheson viewed the higher projected rates as a significant signal.
Acheson highlighted that higher rates, a stronger dollar, and stock market declines could have negative implications for Bitcoin. Nevertheless, the cryptocurrency markets reacted relatively well to the news, suggesting potential buying support at current levels.
Market research firm Asgard Markets expected some profit-taking to occur following the Fed’s decision. They believe that participants who are currently “in-the-money” will take some chips off the table and reassess their positions due to the absence of new catalysts on the horizon.
Zach Pandl, economist at Grayscale Research, noted that the Fed’s embrace of a soft landing scenario, characterized by stronger growth and lower unemployment, could be positive for Bitcoin and Ethereum (ETH). Grayscale Research is an asset management firm owned by DCG, the parent company of CoinDesk.
With the Fed’s decision to maintain its current monetary policy and projections for higher interest rates in 2024, the financial markets are likely to adapt and reassess their strategies accordingly. The impact on cryptocurrencies, such as Bitcoin, remains to be seen as they navigate the changing landscape of monetary policy and economic conditions.
