Fed hikes rates by 0.5%, cryptocurrencies, stocks tumble

PATNA (CoinChapter.com) — The Federal Reserve announced a hike of half a percentage point (0.5%) in its benchmark interest rates on Dec 14 in the last FOMC meeting of 2022. The US central bank projected an interest rate hike of 0.75% by 2023 end.

Moreover, the Fed predicted rising unemployment and stagnant economic growth for the next year.

The hike of 0.5% took Fed’s interest rates to their highest levels in 15 years. Per analysts’ expectations, the Federal Open Market Committee took the borrowing rate to a targeted range of 4.25% and 4.5%.

Smaller Hike In Dec, But Fed Likely To Raise Rates Till 2023

Interestingly, the 0.5% rate hike was a relief from a volley of four back-to-back 0.75% rate hikes. The US last saw similarly aggressive rate hikes from the Fed in the 1980s. Moreover, Federal policymakers plan to continue raising interest rates till 2024.

“I would like to underscore for the American people that we understand the hardship that high inflation is causing and that we are strongly committed to bringing inflation back down to our 2 percent goal.“

Federal Reserve Chair Jerome H. Powell said during the FOMC press conference

The latest quarterly summary of economic projections shows Fed members expect the benchmark policy rate to hit a median of 5.1% by end of 2023. The latest projections are widely different from the committee’s Sept prediction, where the Fed saw 2023 end with 4.6% interest rates.

Seven out of the 19 members of the FOMC predicted rates to be higher than 5.25% in 2023.

Moving on, the Fed committee envisioned a 1% rate in 2024, reducing borrowing rates to 4.1% before bringing the benchmark rates to 3.1% by end of 2025. But long-term outlook eluded the FOMC with the dot-plot dispersed.

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The projections report also lowered the expected GDP gains to 0.5%, barely avoiding the definition of a recession.

Crypto, Stocks Backtrack After Fed Raises Interest Rate

Higher interest rates often have a negative impact on risk-on assets like cryptocurrencies and stocks.

Borrowing money becomes more expensive as a result of Fed rate hikes. As a result, the cost of doing business for public and private firms increases. Moreover, the rising interest rate means corporations will not look to invest in riskier assets like stocks or cryptos.

Additionally, higher market interest rates translate into higher interest for savings account holders. Lesser liquidity in the market means lost opportunities for assets like bonds, stocks, cryptocurrencies, etc.

Bitcoin (BTC) price was bullish after the slightly positive CPI data released on Dec 13. BTC formed a high of $18,373 on Dec 14 before the Fed announced plans to continue its rate hikes. Nearly instantly, Bitcoin price plummeted by nearly 4% within 2.5 hours before bulls could pare some losses.

Bulls would likely try to push BTC back above $18,000 and consolidate there before trying to ignite a bull run.

Ethereum, the second largest cryptocurrency by market value, similarly pared gains after Fed rate hike news hit the wire. ETH price plummeted 3.7% and form a low of $1,301 in less than 2 hours before bulls helped the prime altcoin recover some lost ground.

Besides BTC and ETH, other major cryptocurrencies like Ripple (XRP; -2.5%), Polygon (MATIC; 2%), Dogecoin (DOGE; 2.7%), etc., also experience a sharp decline in their prices.

The stock market slipped too. with the Dow Jones Industrial Average falling 142.29 points to 33,966.35. Meanwhile, the S&P 500 hit a low of $3,965 after plummeting over 2% before recovering.

Major averages and indices reached the low of their daily sessions following the statement from Jerome Powell that hinted that the Fed required more data to change its view of inflation. Powell noted that it would “take substantially more evidence to give confidence that inflation is on a sustained downward path.”

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