Fed Maintains 5.25%-5.50% Interest Rates Amid Inflation Worries, Bitcoin Returns Above $35K

In a widely anticipated move, the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) announced on Wednesday that it would keep its benchmark fed funds rate range unchanged, resting at 5.25%-5.50%. The decision was no surprise to market observers, but what garnered attention was the central bank’s unwavering commitment to addressing the ongoing inflationary pressures that have been weighing on the U.S. economy.

Fed Chairman Jerome Powell, speaking at the post-FOMC press conference, acknowledged the impact of rising U.S. Treasury yields on financial conditions but kept the door open for a potential rate hike in the future. Powell’s remarks emphasized that the Fed remains vigilant in its pursuit of curbing inflationary forces that have driven up prices across various sectors of the economy.

Chairman Jerome Powell

Edward Moya, a market analyst at OANDA, observed, “The Fed’s likely done after back-to-back holds kept rates at a 22-year high.” While the Fed did not rule out a rate increase in the coming months, the sentiment among traders, as reflected in swap contracts, indicated skepticism regarding further hikes.

Market participants have adjusted their expectations in response to the Fed’s announcement. The CME FedWatch Tool now indicates a 74% probability that the central bank will maintain rates at their current level in January, up from 59%. Furthermore, the tool suggests that rate cuts may be on the horizon around mid-2024.

Following the announcement, the financial markets reacted positively. Equities experienced notable gains, with the S&P 500 index rising by 1.1% and the tech-heavy Nasdaq 100 surging by 1.5%. Notably, 10-year U.S. Treasury yields retreated to 4.73%, down from nearly 5% earlier in the week, indicating reduced expectations for further rate hikes.

Cryptocurrency markets also saw significant activity in response to the Fed’s decision. Solana (SOL) led the charge, with a remarkable 16% surge, reaching a 14-month high. Other native tokens of layer 1 blockchains, such as Avalanche’s (AVAX), Polkadot’s (DOT), and Near Protocol’s (NEAR), rose between 6% and 10%. Decentralized finance (DeFi) tokens, which had lagged during October, rebounded, with Uniswap (UNI) and Aave (AAVE) advancing by 15% and 10%, respectively. Ether (ETH), the second-largest cryptocurrency by market capitalization, outperformed Bitcoin (BTC), with nearly a 2% increase.

Source: Coingecko

However, not all tokens experienced such favorable outcomes. SafeMoon’s token SFM plummeted by over 50% in response to a dark cloud hanging over the project. The Department of Justice (DOJ) arrested the executives of SafeMoon for alleged fraud, while the U.S. Securities and Exchange Commission (SEC) filed charges related to unregistered security offerings. This development sent shockwaves through the crypto community and served as a stark reminder of the regulatory challenges that persist in the digital asset space.

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