The Federal Reserve has decided to pause its rate-raising program
In the last meeting, the Federal Reserve had increased rates at ten sessions covering the last 15 months.
On Wednesday, the Federal Reserve of the United States decided not to adjust its target range for the federal funds rate from 5.05% to 5.25% in order to give it more time to evaluate the effects of its prior monetary tightening initiatives.
Bitcoin (BTC) price moved little in the minutes after the announcement since markets widely expected the Fed’s Federal Open Market Committee action.
In March 2022, with inflation reaching an annual rate of more than 8%, the Federal Reserve started tightening monetary policy by increasing interest rates. The fed funds rate was increased from 0% to 5.25% throughout ten consecutive meetings.
The Consumer Price Index (CPI) data released on Tuesday showed that inflation had dropped to 4% in May, the lowest rate over two years. However, the Fed has reminded us that the effects of monetary policy frequently have significant lags, so we may expect inflation to fall further as the effects of recent rate increases ripple through the economy.
Bitcoin’s price has fallen from a record high of $69,000 in late 2021 to the present region of around $26,000, and the aggressive succession of interest rate rises by the Fed is only one of the many factors for this bear market. In 2023 and beyond, one of the bull arguments for Bitcoin is that the central bank may release its grip on the monetary brake.
Fed members anticipate a terminal fed funds rate of 5.6% in 2023, up from 5.1% in March’s predictions, which were announced with the rate decision. At the end of 2024, the Fed funds rate is projected to be 4.6%, up from 4.3% in March. According to the Fed’s latest projections, headline inflation will cool to 3.2% in 2023.
Despite today’s halt, the terminal fed funds rate of 5.6% for 2023 indicates that more rate rises will occur this year. The market expects the Fed to raise rates by 25 basis points at its next meeting in July, and the odds of this happening are now about 70%.