On the afternoon of September 20th, Eastern Time, the Federal Reserve announced that it would slow down the pace of interest rate increases and keep the federal funds rate target unchanged at a range of 5.25% to 5.50%, maintaining it at the highest point in 22 years, in line with market expectations.
In the latest FOMC statement, the Fed said recent indicators suggest economic activity has been expanding steadily, with job growth slowing in recent months but remaining strong and the unemployment rate remaining low. However, we are reminded that the inflation rate remains high and we will continue to pay close attention to inflation risks.
At the same time, the Fed stated that its goal is still to achieve maximum employment and an inflation rate of 2% in the long term. If there are risks that may hinder the achievement of this goal, the Fed will consider changing its stance. Fed Chairman Powell said: There will be no price stability without price stability. A strong job market will go a long way to reducing inflation to 2%.
The Federal Open Market Committee is scheduled to meet again on October 31 and announce its next interest rate decision on November 1. That means consumer price data for September, expected to be released on October 12, will be particularly important in determining the central bank's next move. Investors currently see a roughly 70% chance of keeping rates on hold at the November meeting, according to CME's FedWatch tool.
Wall Street Journal reporter Nick Timiraos, known as the Fed's spokesman, wrote that 12 officials expected to raise interest rates again this year, and 7 officials expected interest rates to remain unchanged. Therefore, the possibility of the Federal Reserve continuing to raise interest rates during the year cannot be ruled out. Although the contents of Powell's speeches are similar, the market will react more or less.
After the news was announced, although there was no interest rate increase this month, as many officials expected another rate increase by the end of the year, all three major U.S. stock indexes fell, and U.S. bond yields continued to rise, including 2-year, 5-year and 10-year bonds. U.S. Treasury bond yields rose to their highest levels in more than 10 years. The strength of the U.S. dollar index in the past two months is shocking. As of last week, the U.S. dollar index had risen for nine consecutive weeks. This crazy market has not been seen in the past ten years. If the U.S. dollar index closes higher again this week, it will be a "tenth consecutive week of positives."
In contrast, the reaction of the cryptocurrency market was relatively calm. Bitcoin briefly fell about 1% to $26,800 at around 3 a.m. after the news was announced. Ethereum fell slightly less than 1% to around $1,600. However, Bitcoin Coin and Ethereum then quickly pulled back and returned to the consolidation range again.
In fact, the crypto market’s reaction was not surprising. Several industry observers have predicted that the Federal Reserve’s decision to raise interest rates or pause them may not have a significant impact on the cryptocurrency market. Fineqia International research analyst Matteo Greco said in a research report on September 16 that many investors do not expect interest rates to rise and have priced it in. Only an interest rate cut will have a significant impact on cryptocurrency prices.
Ruslan Lienkha, director of markets at Web3 platform YouHodler, previously said that the Federal Reserve is likely to keep interest rates steady on Wednesday as it tries to "maintain a balance between a possible recession and high inflation." Such a decision could mean the Fed is simply pausing to "take a breather" or has reached a point where it is no longer considering further rate hikes. However, he also noted that a pause in interest rates is unlikely to spark bullish sentiment in risk assets.
Butterfill believes the impact of high interest rates will put increasing pressure on the economy in the coming months. He added that this would make it more difficult for the Fed to maintain a hawkish stance on monetary policy. “Looking ahead, as high rates put increasing pressure on the economy, the prospect of further rate hikes will diminish, which could support Bitcoin,” he said.
Market research firm Asgard Markets expects some profit-taking following the Fed's decision. "Positioning and sentiment are not as light or heavy as they were earlier this year, and not many new catalysts are emerging, meaning 'in-the-money' players will be giving up some chips and reassessing," the firm said in a note. .
Summarize
In fact, high price volatility is inherent in crypto-assets. Major crypto-assets such as Bitcoin and Ethereum often echo stock market movements. At present, we are not sure how long the U.S. stock market can withstand such high interest rates without falling. If Crash, risky assets could experience massive outflows, which could lead to further declines in the crypto market. In addition, crypto market prices are affected by a variety of factors, not just the Federal Reserve raising interest rates, but also market sentiment, investor confidence, global economic conditions, and more. Therefore, investors need to exercise caution and understand the possible risks when trading in the coming months.