Both crypto and traditional markets saw significant gains overnight Monday in Asia after the U.S. Federal Reserve announced a 75-basis point interest rate increase to battle the worst inflation in the country in some 40 years.
Interest rates in the U.S. are now running at a 2.25% to 2.50% range in the fastest tightening of rates since the 1980s.
Fed Chair Jerome Powell rejected the notion the U.S. was in a recession due to the current strong employment rate.
Powell acknowledged the pain that the sharp increase was causing low-income earners but said this aggressive fiscal tightening policy was necessary to combat runaway inflation.
All major tokens were trading up in the 24 hours before Asian business hours on Monday, with Bitcoin gaining over 8% and Ethereum 14.5% to trade at US$22,840 and US$1,625, respectively.
The markets had largely priced the change in, analysts say, but persistent inflation could move cryptos to the red. The central bank also opted to raise rates 75 basis points in June.
The Federal Reserve doubled down on its newfound quantitative tightening policy making Wednesday, bumping interest rate by three-quarters of a percentage point.
The US regulator cited continued upward pressure on inflation and robust job growth. The move marks the central bank’s fourth consecutive rate increase, a strategy it hopes will curb the highest inflation in more than four decades.
Overall economic activity appears to have slowed a bit, Fed officials wrote in a statement released at the end of their two-day policy meeting, pointing to reduced spending and business production statistics.
Job gains have been robust in recent months, and unemployment has remained low, the statement noted, but the war in Ukraine and ongoing supply chain issues have contributed to persistent higher prices.
In June, when the central bank also opted to raise rates 75 basis points, Fed Chair Jerome Powell called the move “unusually large,” but if current conditions persist, higher increases could become the norm.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the statement said. “The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
Crypto markets reacted well to the news, which analysts say was mostly priced in. Bitcoin and ether gained 1.6% and 2.3%, respectively. The S&P 500 and tech-heavy Nasdaq were largely unchanged — but remained in the green by mid afternoon trading.
“This 75 [basis point] rate hike was previously telegraphed and came as expected, further stoking fears of a slower, longer hike cycle rather than the quicker one preferred by many,” said Steven McClurg, co-founder and chief investment officer at digital asset fund manager Valkyrie Investments. “Most traders are likely to take risk off the table as they head off on vacation for the rest of the summer, and the markets will slowly grind down on thin volumes with a lack of upside catalysts though at least the next FOMC meeting in September.”
It’s hard to predict which market moves might come next, other analysts say.
“We could see a relief rally because the market has priced in such a move already,” Anthony Denier, CEO of trading platform Webull, said. “But, it could also fall if investors believe the Fed still isn’t getting inflation under control and this could mean more big hikes in the near future.”
