As expected by the market, the Federal Reserve (Fed) raised the US benchmark interest rate by 0.75 percentage points. Now, the country’s official Federal Funds Rate (FFR) is between 3% and 3.25%. Thus, the US interest rate reached its highest level since February 2008, surpassing the high cycle that took place in 2018. On that occasion, the Fed raised the interest rate to 2.5%, but the market reacted badly and forced the bank to reduce interest again. After the Fed’s announcement, financial assets faced strong volatility. Bitcoin (BTC) and Ether (ETH), for example, came to fall shortly after the speech of Jerome Powell, chairman of the Fed. But then they recovered and operate in the positive until the closing of this article. US stock indexes also rose, with the S&P 500 up 0.84% to 3,889. The Nasdaq 100 operates up 0.19%.
Fed recognizes inflation but remains cautious
After the announcement by the Federal Open Market Committee (FOMC), Powell gave a speech about the reasons that led to this increase. According to the chairman of the Fed, inflation continues to show signs of strength. “Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher food and energy prices, and broader price pressures. The war and related events are creating additional pressure on inflation and are weighing on global economic activity,” Powell said. In other words, Powell stated that inflation should remain high, something that was confirmed by the US CPI result for August, which fell less than expected. In addition, the Fed chairman stated that unemployment rates are still expected to rise in the coming months. In light of this scenario, Powell said that the Fed should continue raising interest rates for a longer period of time, something that could cause a reduction in economic activity. As a result, US GDP may even experience a recession in the future.
Cryptocurrencies Rise Despite Decision
Even with a new (and strong) increase in interest rates, the market reacted with more optimism than one would have imagined. One of the reasons for this was that the Fed did not make a sharper 100 basis point increase, as many analysts had expected. After the decision was announced, the price of BTC even dropped below $18,900, but bounced back soon after. According to TradingView, the cryptocurrency is up 3.75% to $19,617 per unit.
BTC price after Fed decision. Source: TradingView. For José Artur Ribeiro, CEO of the Coinext exchange, the Fed’s decision in line with the market contributed to the appreciation of BTC. But Ribeiro hopes that the month of September will not bring new valuations. “In the last week, we followed the downward movement that anticipated this action, so the next few days may be a slightly positive market. The September close should be negative for Bitcoin, proving the predominantly downward history of this month of the year. However, the outlook for the near future can be seen from a positive bias,” he said. Read also: New Ethereum update will have withdrawal mechanism for ETH in staking Read also: Hacker saves Arbitrum from losing BRL 2.4 billion and complains about low reward
