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Bitcoin, Ethereum Jump as Fed doubles tapering, signals interest rate hikes, talks about crypto

Jerome Powell. Source: A video screenshot, Youtube /

The price of Bitcoin (BTC) rose immediately after a two-day period US Federal Reserve Wednesday’s (Fed) meeting, with the meeting’s statement saying that interest rates will remain unchanged for the time being, while the amount of the reduction has doubled from last month. The Fed has announced that there will be three rate hikes in 2022.

At 19:10 UTC, BTC was trading at $ 49,200, up 3.1% in the past 24 hours and nearly 3% in the first 10 minutes after the statement was released. Ethereum (ETH) rose 4% in the same 10 minutes to top $ 3,965.

At the same time, the US stock index S&P 500 reacted to the statement of the meeting with a gain of 0.4% within 10 minutes of the publication of the statement. At the time of writing, the index remains up 0.36% for the day.

“In view of the development of inflation and the further improvement in the labor market, the committee decided to increase the monthly rate of its net asset purchases by 20 billion.

At a press conference, Fed chairman Jerome Powell said headline inflation was “well above” the 2% target and would remain so for the next year.

“We are committed to our price stability goal,” and will use whatever tools we have to prevent higher inflation “solidifying,” said Powell.

It is noteworthy that the word “temporary”, which the Fed used to describe inflation, has now been removed.

When specifically asked during the press conference whether he saw risks to the financial system from cryptocurrencies, Powell said that from a financial stability perspective, he wasn’t worried about it for the time being.

He added that he was more concerned about individual investors who may not understand what they are investing in.

“I think it’s risky […] They are not supported by anything, “said the Fed chairman.

Additionally, Powell added that, in his opinion, stablecoins could be useful “if properly regulated”. Stablecoins could also be scaled up to a much larger size if adopted by large tech companies, the Fed chairman noted.

Meanwhile, in forecasts released today, the Fed also said it expects three rate hikes in 2022, followed by two more in 2023 and two more in 2024.

The Fed’s move represents a major policy adjustment that has been the loosest in the history of the central bank.

“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to increased levels of inflation,” the statement said. It added that “employment growth has been solid over the past few months and the unemployment rate has fallen significantly”.

Before today’s statement, Chief Investment Officer of Global Fixed Income at an asset management company BlackRockRick Rieder told CNBC, “I think the exit from the easing business is very overdue.” If the bond purchases are ended earlier, the Fed has the option to hike rates, Rieder said, saying, “I think they can hike rates in 2022. I don’t think there is any rush.”

The Fed’s decision to double taper follows the central bank’s commitment last month to maintain a “looser stance on monetary policy” while reducing its monthly bond purchases by $ 15 billion per month.

Today’s statement represents a doubling of the Fed’s cuts in monthly security purchases.

However, the Fed also added at the time that it was “ready to adjust the pace of buying” if the economic outlook changes.
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Reactions:

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Learn more:
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– Fears of inflation in an unexplored recovery
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(Updated at 19:38 UTC with additional details. Updated at 19:42 UTC with additional responses. Updated at 20:32 UTC with additional comments on crypto.)

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