Bitcoin, Ethereum Trade Sideways as Fed Skips Rate Hike

It’s the first time the Fed has not raised rates at a meeting in 18 months.

By André Beganski

Jerome Powell, chairman of the Federal Reserve. Image: Federal Reserve

The Federal Reserve on Wednesday said its benchmark lending rate will stay put for now, electing to skip a rate hike during its latest Federal Open Market Committee meeting.

For the past 18 months, traders have wondered when the Fed might flinch in its fight against inflation, watching with anticipation since the U.S. central bank lifted interest rates from near-zero last March—steadily putting pressure on the economy.

“Inflation has moderated somewhat since the middle of last year,” Fed Chair Jerome Powell said during a press conference on Wednesday. “Nonetheless, inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go.”

The crypto market held steady following Powell’s statements, with Bitcoin and Ethereum trading at roughly the same price over a 24-hour period. Much changed in the hours since the Fed’s announcement, however. The price of Bitcoin has dropped sharply, losing 2.6% of its value in the last hour. Ethereum has fared even worse, falling by nearly 5% in the last hour.

After an aggressive sequence of 10 rate hikes, the Fed’s benchmark interest rate currently stands between 5% and 5.25%. That means the rate, which dictates the interest banks and other depository institutions charge on short-term loans, is the highest it’s been since 2007.

Even though the Fed has decided to keep interest rates where they currently are, the U.S. central bank signaled its willing to lift rates higher if needed. Powell said, “Nearly all Committee participants expected it will be appropriate to raise interest rates somewhat further by the end of the year.”

That’s despite strains in the financial system that appeared with the failures of several regional banks and the possibility of a Fed-induced recession.

“Holding the target range steady at this meeting allows the Committee to assess additional information,” the Fed said in a statement. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

The Fed’s crystal-clear outlook comes as regulatory storm clouds hang over the digital assets industry, ushered in by lawsuits against leading crypto exchanges brought by the Securities and Exchange Commission.

While Bitcoin and Ethereum have fallen over the past week—along with many altcoins—both coins traded sideways going into and after the FOMC’s latest maneuver. Just after Powell’s comments, Bitcoin was up 0.1% to around $25,900 over the past day, and Ethereum was down 0.4% to close to $1,730, according to CoinGecko.

Roughly two hours after the release of the FOMC’s minutes, however, prices moved considerably. Bitcoin is now trading just above $25,000, down roughly 3% in the last day, while Ethereum has shed more than 5% of its value and trading at around $1,650.

Since the SEC sued Binance and rattled the crypto market on June 5, Bitcoin has fallen roughly 7% from around $26,870 and Ethereum has tumbled 11.7% from around $1,870 over the same period.

Prices started soaring after the economy was pumped with pandemic-era relief and snarled supply chains led to a limited supply of certain consumer goods. In response, the Fed has raised interest rates and made it more expensive for businesses and consumers to borrow. That’s made all forms of borrowing, from business loans to credit cards, more costly.

This, in turn, has also hampered so-called risk assets like stocks and crypto as cash reserves and government debt becomes more attractive by comparison.

The Fed’s decision on Wednesday comes a year after inflation peaked at 9.1% last June. The latest Consumer Prices Index report showed consumer prices rose 4% on an annual basis in May, yet that remains far above the Fed’s target of 2%.

Whether the Fed would raise interest rates on Wednesday was far from a tossup according to the CME Group’s FedWatch Tool. Traders penciled in a nearly 98% chance the Fed would hold rates steady this week.

But arguably bigger questions are looming: How long will the Fed keep rates where they currently are? And how will the economy fare in the meantime?

Crypto Chaos of 2022 ‘Didn’t Damage Technology Underlying the Industry’: X Ventures Co-Founder Matthias Reiser

Ahead of this month’s Proof of Talk event in Paris on June 14 and June 15, X Ventures co-founder and the event’s co-organizer Dr. Matthias Reiser said nothing’s changed for those with a “long-term view” of the industry. Still, events like the collapse of Terra and FTX in 20222 have certainly damaged investors’ trust in crypto.

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In terms of interest rates, the most likely scenario, according to the FedWatch tool, is that the U.S. central bank holds rates steady at least through the end of the year. Traders believe there’s a nearly 43% chance of that happening.

As for the economy, the Fed acknowledged on Wednesday that—despite rate hikes—the economy continues to expand and job growth is holding up while unemployment is near historic lows.

“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation,” the Fed said in its statement. “The extent of these effects remains uncertain.”

Editor’s note: This article was updated after publication to note significant market movements in the hours since the release of the FOMC’s minutes.

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