The Fed, the US central bank, raised the cost of credit again on Wednesday, which is now between 5% and 5.25%. It is the tenth time he has done it in a little over a year, almost nothing! But it looks like she’s running out of breath, because she said she might take a break from her rate-raising career. The reason? The economy is cooling and the banks are shaking. Consequently, the markets celebrate (in part) and cry (in part).
What will happen now? No one knows for sure, but many analysts expect the Fed to keep rates on hold for a while, until they see how economic indicators evolve. Others, however, believe that the Fed will have to raise rates again soon, to prevent inflation from running out of control. And some even think that the Fed will have to lower rates in the future, to stimulate activity and avoid a recession.
Jerome Powell, the head of the Fed, said the financial crisis had made it more difficult and expensive for people and businesses to borrow.. That’s not good for the economy, because it means there’s less money to spend and invest. On the other hand, Powell also said that inflation, which is rising prices, had calmed down a bit and people expected it to stay that way. That’s good for the economy, because it means money doesn’t lose as much value.
All Fed members agreed to raise rates, but the message they sent after the meeting suggested some had doubts.. Perhaps they think that the rates have already risen enough and that it is not necessary to continue tightening the nuts so much. The Fed said that it would be very attentive to how the economy and the markets are doing, and that it would do whatever it takes to keep everything running smoothly.
The Fed has raised rates so high and so fast that they are now at the level they were 16 years ago, when the iPhone didn’t even exist. The Fed started raising rates in March 2022, as the US economy was recovering from the coronavirus crisis and prices were skyrocketing. The Fed wanted to keep inflation from getting out of hand, but it may have gone too far. Don’t know.
No one in their right mind dares to say that the Federal Reserve (Fed) interest rate hikes do not affect stocks, cryptocurrencies and other investments. The Fed has raised rates many times since 2021 and could raise them more times in 2023 to control inflation. Higher rates have had a negative impact on markets since November 2021, when cryptocurrencies and many riskier assets peaked. However, not all sectors and types of assets have behaved in the same way in this environment of rising rates. Some have held up better than others and have offered attractive investment opportunities.
Higher rates and fears of a possible recession have put pressure on markets, but investors seem less anxious now than before. The market has shown some strength since October 2022 and the year has started well, with the S&P 500 rising and the Nasdaq Composite as well. Bitcoin has also recovered from its slide, although below its all-time high, it is not quite as bottom as before. However, uncertainty about whether there will be a recession and its possible severity remains quite high.
The higher rates affect the price of Bitcoin, which has fallen sharply from its all-time highs. That no one can deny. Some experts believe that Bitcoin is a hedge against inflation and the devaluation of the dollar, while others think that it is too volatile and speculative to be considered as such. All this is debatable. In most cases, it all depends on which side you belong to. Whatever the position, Bitcoin is not an island on another planet. The monetary and macroeconomic environment undoubtedly has an effect on its demand. After all, Bitcoin buyers and sellers are flesh and blood human beings inhabiting this world. Your purchasing power depends largely on circumstances.
Do you know what you need to buy Bitcoin? No, they are not black beans. Nor are they candy, nor stamps, nor precious stones. What you need are dollars. Yes, those green bills that you like so much. And not only you, but also everyone who wants to buy Bitcoin in the world. That’s why, the demand for Bitcoin depends a lot on the amount of dollars that are in circulation. If there are a lot of dollars, people have more purchasing power and can spend more on Bitcoin. If there are few dollars, people have less purchasing power and can spend less on Bitcoin. It’s simple, isn’t it?
Well, it seems that the market also understands it that way. That’s why he’s happy when the Fed says it’s (possibly) going to stop raising interest rates, which are a way of reducing the supply of dollars. And he gets sad when the Fed says otherwise. So those interested in buying Bitcoin could not ignore the fluctuations of the dollar.
What motivates you to buy Bitcoin? Is it your logo design? Is that the sound of your name? Obviously, the motivation is the expectation that Bitcoin will be worth more in the future than in the present. That is, that tomorrow is better than today. That is what moves the market: expectations. And expectations depend on many factors, including monetary policy. If monetary policy is favorable for Bitcoin, the market perks up. If it is unfavorable, it is depressed. As simple as that. Is the monetary policy set by the Fed important? Of course.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.