The Federal Reserve announced it would keep its overnight interest rate near zero, what does this mean for Bitcoin?

By Selena On Jan 28, 2021

The Federal Reserve said Wednesday it would keep its benchmark interest rate near zero and make no change to its monthly bond purchases of at least $120 billion until the economic recovery gains ground.

The Federal Reserve today announced it would keep its overnight interest rate near zero

As the federal government rolls out a mass vaccination plan and weighs additional stimulus in the midst of the coronavirus crisis, the central bank is keeping its commitment to help everyday Americans through the pandemic.

That means rock-bottom rates will stick around, for now.

With millions of people out of work and a growing number of Americans feeling severely cash-strapped, the Fed’s policies can help, even without another Covid relief package.

Although the federal funds rate, which is what banks charge one another for short-term borrowing, is not the rate that consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.

For example, the economy, the Fed, and inflation all have some influence over long-term fixed mortgage rates, which generally are pegged to yields on U.S. Treasury notes. Currently, the average 30-year fixed-rate home mortgage is near a record low at 3%, down from 3.77% a year ago.

When the interest rate is zero, there is a high possibility that investors can switch to alternative assets – like Bitcoin. This is because interest-bearing investments—like bonds or debt-based financial instruments—aren’t generating interest, and would therefore be less attractive. Moreover, since lower interest rates tend to go together with higher inflation, Bitcoin becomes a hedge against the devaluation of the dollar.

With the US central bank keeping its aggressive monetary policy in place, it looks as if the shift toward alternative assets—including crypto—may well continue.

Read more:

Join us on Telegram