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US Federal Reserve Hikes Interest Rates to Highest Level Since 2007; Should the Crypto Market Be Worried?


As inflation continues to deepen and defy all corrective measures in the U.S, the Federal Reserve has once again hiked interest rates by 0.75 percentage points. The Wednesday decision was widely expected. And it marked the third consecutive time in 2022 that the Fed will be raising rates by that much.

2-Year Treasury Yield Surges Past 4% As the Fed Foresees Rates Rising to Unexpected Levels

Following the latest raise, the yield on the 2-year Treasury note rose above 4.113%, reaching levels not seen since October 2007. At that time, the 2-year Treasury hit highs of 4.138%. The 10-year Treasury also topped 3.64% to reach its highest level since February 2011.

Meanwhile, the Fed has also hinted at what more to expect in the coming months. Considering the present momentum at which the policy rate is rising, the Fed believes that some outcomes might not be avoidable. 

Firstly, it is expected that at some point, the economy will slow down to a near-zero. After the economy slows down, unemployment is also expected to keep rising to levels that are closely associated with recession.

So following the interest rate decision, Federal Reserve chair Jerome Powell hinted that the federal funds rate is expected to reach 4.4% by 2022 end. Essentially, this means that the Fed’s next monetary policy meeting will also raise interest rates. The Federal Reserve does not expect rate cuts until 2024, taming hopes of easing financial conditions anytime soon.

Traders in traditional markets are already betting that a 75 basis point rate hike is the most likely scenario at the next meeting. For their own, they believe that the Fed will keep hiking the rates until it reaches somewhere above 4.25%. When it reaches that point, some economists project that the policymakers will maintain that rate until inflation reduces significantly. Recall that, ultimately, the Fed is targeting the rate of 2%.

In any case, it remains unclear how long rate increases will continue. The Federal Reserve does not expect rate cuts until 2024. This is even as some top officials within the Federal Reserve believe that the rate hikes will continue through 2023.

How the Federal Reserve Decision Impacts Bitcoin

Usually, it is expected that rate hikes will cause pain for the crypto market. This is as investors grow and tend to lean more toward cash and cash-related instruments rather than riskier assets. And recall, the central bank’s dot plot also hints that investor sentiment would remain unchanged until the end of 2023.

To put this into perspective, after the Fed’s decision, Bitcoin’s (BTC) price fell 6.5% from its intraday high of $19,950, reaching $18,660 in minutes. There was a similar correction in the U.S. stock market as well, with the benchmark S&P 500 dropping 0.5% minutes after the Fed statement.

Although Bitcoin has regained some of its losses, its outlook continues to be bearish. Analysts also doubt its price will be able to hold its current technical support range of $18,000–$20,000. That is considering that more rate hikes are expected in a few weeks.

In short, as long as the Fed remains hawkish trying to bring down inflation from its current 8.3% level, Bitcoin price will most likely continue to suffer.

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