Federal Reserve Holds Interest Rates Steady, Crypto Market Reacts
The Federal Reserve Wednesday elected to keep its key interest rate steady as the central bank’s focus on fighting inflation compounded pain in the crypto market.
Powell’s Cautious Tone
In his typically cautious tone, Federal Reserve Chairman Jerome Powell told reporters that the fight to get inflation to 2% was difficult but added that he thought it was “unlikely that the next policy rate move will be a hike.”
“I’d say it’s unlikely,” he said, but warned that it was “likely to take longer for us to gain confidence that we are on a sustainable path to 2% inflation.”
He would not reveal to reporters when there would be a rate cut.
Crypto Market Reaction
As of this writing, Bitcoin and Ethereum had fallen 4.6% and 1.3% over the past day to $57,600 and $2,945, respectively, according to CoinGecko. Meanwhile, the S&P 500 and tech-heavy Nasdaq had fallen slightly throughout the trading day.
But while the daily shift is broadly downward, both Bitcoin and Ethereum have marked slight increases over the past hour, including ahead of and since the rate announcement. Bitcoin is up 1% over the past hour, while Ethereum has perked up by 2% during the same span.
Inflation Concerns
Signs of stubborn inflation have lent traders pause, as fears boiled over last month that the Fed could be forced to keep interest rates higher for longer than anticipated. Those jitters were elevated recently by a stronger-than-expected rise in inflation and growth in wages in the first quarter.
Shifting rate expectations are driving Bitcoin’s price more as spot Bitcoin ETFs see pittering inflows, CoinShares’ Head of Research James Butterfill told Decrypt Monday. For Ethereum, the pressure comes as a court battle over its regulatory status in the U.S. continues to come to light.
Market Impact
Higher interest rates, which can slow the economy through increased borrowing costs, are generally bad news for risk assets like stocks and crypto. That’s because the payout on cash reserves and U.S. Treasuries becomes relatively more attractive as rates move and stay higher.
Though the Fed in March had penciled in three quarter-percentage point cuts for 2024, traders have grown less hopeful. According to the CME’s FedWatch Tool, financial market participants may see only one rate cute—or zero—by year’s end.
As rate cut expectations inched further out in April, Bitcoin notched its worst month since November 2022. Coming off all-time highs in March, Bitcoin fell 14% throughout the month to around $60,000.
Powell’s Assessment
In April, Powell said that inflation hasn’t come down as quickly as policymakers expected, suggesting rate cuts could still be far out. Yet the Fed chair signaled interest rates, where they currently are, could also be sufficient to get the job done too.
“The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he said. “That said, we think policy is well positioned to handle the risks that we face.”
Edited by Andrew Hayward with additional reporting by Mathew Di Salvo.
