Despite the hawkish rhetoric from the Federal Reserve, bitcoin bulls ignored the announcement that the Fed Funds rate will be raised by a quarter-percentage point to a range of 0.25%-0.5% from its current close to zero level.
The central bank raised its benchmark interest rate for the first time since December 2018.
- Bitcoin is up 4.79% for the day at $41K with a daily trading volume of $34 billion, at the time of drafting this report.
- A strong support level of $38K has been proving itself as a solid support level in the 4-hour’s short-term timeframe, preventing the flagship crypto decrease.
- A bearish outcome would mean looking at $37K. In addition, it is worth pointing out that the descending trendline is the price’s primary resistance on the shorter time frames.
US Fed Policy
The Fed said in a statement that inflation remains elevated because of supply and demand imbalances due to the pandemic, higher energy prices, and broader price pressures. In the near term, however, the invasion and related events are likely to add to inflation pressures and drag down the economy.
- Additionally, the Fed announced it would reduce its balance sheet “at a coming meeting.” It did not specify whether it would do so at its next meeting in May.
- Following a four-decade high of 7.9% in February, the widely monitored consumer price index (CPI) was approved by the Fed Open Market Committee, with many economists predicting inflation is yet to peak.
- As reported by the U.S. Labor Department on Tuesday, the producer price index (PPI) rose 10% in February for the first time in history.
- The Fed’s policy statement was closely watched by cryptocurrency traders. There has been a headwind for digital asset prices, particularly bitcoin, in the prospect of an extended series of rate hikes or balance sheet reductions.
- It was anticipated that riskier assets like Bitcoin wouldn’t react strongly to a rate hike, but will react very strongly to anything that’s said in the statement or more likely in the press conference, which indicates a change in the quantitative easing exit schedule or the start of quantitative tightening.
With Wednesday’s policy statement and announcement, the Fed also released its quarterly economic projections and a “dot plot” indicating expectations for the overnight lending rate between banks, known as the fed-funds rate.
According to current expectations, the fund will hike by 25 basis points seven times in 2022, which would bring its rate up to 2.8%. Three months ago, that estimate was 100 basis points lower.