Jack Choros
Content Marketing
The United States continues to experience inflation, accelerating at an alarming rate and by more than forecast in the month of June. The Federal Reserve has been raising interest rates to combat inflation in the hopes of lowering it.
Price Action
Bitcoin’s price rallied to above $24,000 following the Federal Reserve raising interest rates by 0.75% percentage points last week. The digital asset has stayed consistently above $23,000 a week after the announcement.
Bitcoin continues to attempt a sustained rally after several failed attempts over the last month or so, and has sustained it for the past week following the announcement. Over the last month, the world’s largest digital asset has been trading between $20,000 to just over $24,000. Bitcoin struggled to surpass the $20,000 mark for well over the month following the crash, which wiped out 50% of its value.
Other digital assets also rose, with Ethereum jumping around 8.43% and currently sitting at $1,604.40 at the time of writing this.
Interest Rate Hikes Again in Canada
Last week, the Federal Open Markets Committee (FOMC) and Federal Reserve raised their benchmark interest rate by 0.75 percentage points in an attempt to fight rising inflation without bringing the economy into recession.
The news came from the chairman of the FOMC, and Federal Reserve, Jerome Powell, who addressed the rate increase during the customary follow-up press conference. Powell suggested that the pace of rate rises could slow, sparking an equity rally this week which has fed through to European and Asian trading.
Powell also discussed several issues, including continued supply chain constraints, the fear of a possible recession, continued quantitative tightening, and the conflict in Ukrain. He also gave insight into future possible FOMC action related to the rising pressures of inflation.
Antoni Trenchev, the co-founder of digital asset wallet Nexo, said in a research note: “The conclusion of Wednesday’s Fed meeting opens up a summer window for a Bitcoin relief rally, given we now have two months until policymakers next deliberate on monetary policy.”
Inflation & What to Expect
Federal Reserve lifted interest rates this week as the central bank tries to pull inflation down from a 40-year high.
This latest rate hike follows the increase in June that was a similar size. The June increase occurred when central bank officials started to worry about inflation.
The latest consumer-price index showed that inflation jumped 9.1% in June from a year earlier, faster than in May, causing investors to anticipate another significant increase and showing that prices had yet to peak.
The hike in July brought the main policy rate to a range of 2.25-2.5%, a level considered to be neutral where interest rates neither stimulate nor restrict economic activity. Now many are speculating how restrictive interest rates will get. Powell stated that a 0.75-percentage-point hike won’t be a common occurrence. A recent cooling in some measures of consumer inflation expectations means the Federal Reserve could start to tighten by smaller increments.
During a press conference this week, Powell refrained from giving the more explicit forward guidance investors have come to expect. He emphasized the Federal Reserves’ commitment to restoring price stability and said they have no intention of failing. However, Powell also stated that economic uncertainty remains unusually high and another 0.75 percentage point hike could be necessary in September.
The digital asset space is sustaining the rally it has been on for the last few weeks, even a week after the announcement of the rate hike.
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Written by: Jack Choros
Writer, content marketing at Netcoins.