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The Federal Reserve raised interest rates by 25 basis points on February 1, 2023, bringing the US Federal Funds rate to between 450 and 475 basis points.
The latest gains follow a 50 basis point hike in December 2022 and a 0.75% gain in November 2022.
Fed Chair Says FOMC Not Swayed by Short Term Data
While acknowledging the effect of the recent rate hikes on the economic slowdown, Fed Chair Jerome Powell said that the Open Market Committee would not change course until it sees a sustained change in macroeconomic conditions in the US.
He added that further rate hikes were likely at the next FOMC meeting in March, with a break unlikely in 2023.
“We will need more evidence to believe that inflation is on a continuing downward path,” Powell stressed. Powell added that continued quantitative tightening would allow for slow but positive economic growth in the United States.
After Powell’s speech, Bitcoin briefly dipped below $23,000, while Ethereum dipped briefly to $1,556 before surging above $1,631. XRP behaved similarly, dropping from $0.404662 to $0.398515 before recovering 1.8% to $0.405687. Bitcoin then rose to nearly $23,500 as markets ruled out the prospect of further rate hikes in 2023, albeit at a slower pace.
Equity markets behaved similarly, as the S&P 500 recovered from an initial 1% drop. The Nasdaq is up 1.9% from its initial decline after the Fed announcement.
Central Banks Will Likely Watch Labor Data
Prior to the announcement, the Wall Street Journal’s US economic policy correspondent Nick Timiraos predicted that some influential Fed staff would adopt a broader view rather than being swayed by the recent price declines caused by the lower Consumer Price Index and Personal Consumption Expenditures in December. .2022.
This view, which looks at whether the economy is operating above or below capacity, would focus on a tight US labor market, with the lowest unemployment rate in 50 years. Powell emphasized that there are currently more jobs than workers, and wage growth is accelerating. Higher wage growth means companies can provide wage advantages to consumers, driving up the final price for the goods or services they provide.
If wages continue to grow relentlessly, inflation will continue to increase.
Post-pandemic, mathematical models such as the Phillips curve, which correlate wage increases with falling unemployment below a certain level, have become less reliable, making it difficult to predict the effectiveness of quantitative tightening.
Hence, the Fed will likely need to continue relying on the monthly jobs data to determine the pace and aggression of future rate hikes.
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Disclaimer
BeInCrypto has reached out to the companies or individuals involved in the story for an official statement on the latest developments, but have received no response.
Source: https://beincrypto.com/btc-rallies-fed-confirms-rate-hike-pause-unlikely/
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