The global market revolves around the events like interest rate decisions, monetary policy statements, and press conferences that are associated with the Federal Open Market Committee (FOMC). These events have a huge impact on assets like USD currency pairs, gold, oil including Bitcoin which usually react to the actions taken by FOMC.
Any changes in monetary policies will influence the financial market through the monetary transmission mechanism and the expectations that are set by FOMC will have an impact on asset price.
So, when the interest rate is reduced or any unusual policies are implemented, investors are forced to move away from bonds or any other interest-rate linked instruments and hop onto accumulating stocks, gold, or Bitcoin to curb higher returns. Hence creating a great demand for stocks, gold & Bitcoin.
Fed Rate Hikes Impact On Crypto!
Following the previous 25 basis point rate hike, markets reacted positively, and the valuations of many cryptos also increased subsequently.
In the short term, if the Fed decides to go ahead with the decision of increasing the rate, then the crypto market will be affected to some extent. However, when looking at mid and long-term investment opportunities in the market, these changed monetary policies will have minimal to zero effect.
The next Federal Open Market Committee (FOMC) meeting is scheduled for May 3rd and 4th. During this meeting, the representatives are expected to raise the FED Funds interest rate by 50 basis points. As per the reports they are also going to start a quantitative tightening process. Quantitative tightening is a monetary policy that is applied by the central bank to reduce the amount of liquidity within the economy.
This FOMC meeting is definitely gonna have an impact on how the market is gonna perform in the aftermath of the meeting.
On the other hand, a few crypto community members are of the opinion that the rates will remain steady with not much surge in interest rates. Hence traders will be forced to decide either to invest in bonds or switch to stocks or digital assets attracting huge demand.
FOMC To Have A Series Of Rate Hikes!
The Federal Reserve held its first meeting for the year 2022 on January 25th and 26th. During the first meeting, the FOMC indicated that it could soon increase the interest rates for the first time in more than three years.
In the next meeting, the Federal Reserve proved the intimation to be true in the next two-day meeting on March 15 and 16. The FOMC concluded the meeting by raising the federal funds rate target range by 25 basis points and this falls at a range of 0.25% to 0.50%, the first Fed rate hike since 2018.
The Fed’s increased rate hike comes in the midst of geopolitical uncertainty. According to the reports, this is the first of several hikes that are expected to be seen in the year 2022 and see a surge from 1.75% to 2% and then from 2% to 2.25% by the end of 2022.