Federal Reserve plans three rate hikes next year – how does it impact equities and crypto

Federal Reserve plans three rate hikes next year – how does it impact on equities and crypto
Federal Reserve plans three rate hikes next year – how does it impact on equities and crypto

PUNE (CoinChapter.com) — The Federal Reserve officials revealed after their two-day-long policy meeting on Wednesday that they expect to raise interest rates three times in 2022.

Wall Street went through a demographic restructuring, rising sharply on Wednesday but only to wash out the gains on Thursday. The crypto-currency market perceived this as a possible obstacle as the digital currencies have historically performed better in times of loose fiscal policies.

In a cannon-ball shift from their last projections in Sep 2021, they highlighted the acute priority of hawkish interest rate measures as the US central bank assumes a much more aggressive approach to taming surging inflation.

Inflation targeting not a choice anymore

The Fed confirmed that the inflation test for lift-off had been met. As a result, it will begin cutting purchases to the tune of $30bn a month in January 2022, de-plugging the stimulus well before the expected timeline.

Jay Powell, chair of the Federal Reserve, said:

“We need to retire the word ‘transitory’ when talking about inflation and to understand that stable prices are essential to a long-term economic expansion.”

When asked about the possible timing of the first interest rate increase, Powell said he did not expect a “very extended wait” between the end of the asset purchase program and lift-off.

“The economy is so much stronger now, so much closer to full employment, inflation is running well above target and growth is well above potential. There wouldn’t be the need for a long delay.”

federal reserve, Federal Reserve plans three rate hikes next year – how does it impact equities and crypto
S&P 500, NASDAQ Composite, and Russel 2000 on Wednesday, 15th December 2021
Source: FT

At the end of its two-day policy meeting on Wednesday, the Federal Open Market Committee kept its main interest rate at the rock-bottom range of 0 to 0.25 percent while signaling support for a more assertive approach to tightening the monetary policy.

Thursday sell-off in Growth Stocks

On Thursday, the opening bell saw a jump, while the following sessions did not support the hike.

The Dow Jones Industrial Average fell 0.08% to end at 35,897.64, while the S&P 500 lost 0.87% to 4,668.67. The S&P 500 value index climbed 0.7%, while the growth index fell 2.1%, reflecting investors’ views that high-growth stocks tend to underperform when interest rates rise.

This image has an empty alt attribute; its file name is US-stocks-16th-dec.png
S&P 500, NASDAQ Composite, and Russel 2000 on Thursday, 16th December 2021. Source: Tradingview

However, the value index includes stocks considered more likely to do well during an economic recovery.

Is this really a threat to the crypto world

While the flagship cryptocurrency Bitcoin did feel the price shocks arising in the equities market, the small magnitude of the impact reaffirmed the fact that crypto-assets now are much more than just inflation hedges. While a healthy coupling level with the benchmark indices is desirable, Crypto assets today have cemented their worth in terms of utility and necessity.

federal reserve, Federal Reserve plans three rate hikes next year – how does it impact equities and crypto
Bitcoin feels the impact of the movement in Equities
Source: Tradingview

However, the hawkish FED policies ahead may pose a washout risk of the investment capital parked in cryptos.

Lower forecasts for 2022 after an economically forgettable 2021

Coming up with the new projections on Wednesday, the FED raised the forecast for core inflation — now running at 4.1 percent — to 4.4 percent this year before dipping to 2.7 percent in 2022. It also lowered the estimate for the unemployment rate to end 2021 at 4.3 percent while falling next year to 3.5 percent. Fed officials lowered their forecasts for economic growth from 5.9 percent to 5.5 percent in 2021 and a 4 percent pace in 2022.

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federal reserve, Federal Reserve plans three rate hikes next year – how does it impact equities and crypto

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