Crypto up as Federal Reserve announces 0.75% rate hike

    28 Jul 2022

    The Federal Reserve has hiked interest rates by another 75 basis points. This comes after inflation in the US had hit a 40-year high of 9.1% in June. The crypto market has rallied in response, despite the Fed’s repeated rate hikes are promoting concerns of a recession.

    Since Wednesday, US interest rates have returned to pre-pandemic levels as the Federal Reserve has hiked interest rates by another 75 basis points, in an attempt to tackle soaring inflation rates. The US central bank announced this move at Federal Open Market Committee on July 27. US interest rates are now between 2.25% and 2.5%, the highest levels seen since the beginning of the COVID-19 pandemic.

    This development came after the US Bureau of Labor Statistics revealed that the Consumer Price Index had risen to a 40-year high of 9.1% in June despite the central bank’s previous efforts to curb soaring prices with interest rate hikes.

    To further fight inflation, the Fed can attempt to contract the money supply. It does so by raising interest rates, which makes borrowing money more costly. The 75 basis point hike was widely expected, though it was speculated that the central bank could opt for a 100 basis points hike shortly after the inflation data for June dropped.

    “Inflation has obviously surprised to the upside over the past year, and further surprises could be in store,” Fed Chair Jerome Powell said at the press conference after the FOMC meeting. While he stated that it would “become appropriate to slow the pace of increases,” he added that the central bank would consider “an even larger” hike if needed in the future.

    Meanwhile, the crypto market has reacted positively to today’s hike, with both Bitcoin and Ethereum jumping following the Fed’s announcement. Bitcoin crossed $23,000 and is up 6% in the past 24 hours. Ethereum hit around $1,650, jumping 13% on the day. After the latest rally, the global crypto market capitalization has once again topped $1 trillion.

    Lately, the Fed’s efforts to curb inflation come as uncertainty prevails across global markets and fears of a possible recession escalate. The Bureau of Economic Analysis’ GDP print showed the US economy shrank by 1.6% in the first financial quarter, and many economists fear that the economy could post a decline in the second quarter. A recession has historically been identified by two consecutive quarterly declines in GDP.

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