On Wednesday, July 27, the United States Federal Reserve (Fed) raised the target range for the federal funds rate by 75 basis points, to 2.25–2.50%. The cryptocurrency market responded with a rally.
“In recent months, there has been steady job growth and a low unemployment rate. Inflation remains elevated, reflecting the demand-supply imbalance linked to the pandemic, high food and energy prices, and broad price pressures,” the Fed said.
The Fed noted that the war in Ukraine is raising inflation and weighing on global economic activity. The Fed intends to achieve maximum employment and bring inflation back to 2%.
Bitcoin rose to $22,000 on the rate hike. Ethereum is trading at around $1,500.
According to CoinMarketCap, the market capitalization of cryptocurrencies exceeded $1 trillion, although a day earlier it had dipped below the key threshold. All top-10 assets by this metric were in the green.
Opium Protocol founder Andrey Belyakov, in a ForkLog comment, noted that the main message was in the investors’ letter: the Fed’s focus would shift from the expected trajectory of the key rate to incoming macroeconomic data.
“At the same time, economic data indicate that the worst inflation is behind us. No major economic data are expected in August, and at the same time current profits of American companies are better than expected. All of this gave investors and capital markets and growth stocks confidence, with which cryptocurrencies have recently been closely correlated,” explained Belyakov.
In March, the Fed, for the first time since 2018, raised the key rate to 0.25–0.5%. Traditional and crypto markets reacted to the decision with gains. Among digital assets, a local rally continued through April — Bitcoin and Ethereum reached yearly highs.
In May, the Fed again raised the rate. Contrary to expectations, the regulator’s policy proved softer — the rate rose by 50 basis points (expected 75 basis points).
Against the backdrop of the news, Bitcoin crossed the $40,000 mark, but the price spike proved short-lived — the same day the price of the first cryptocurrency fell below the $36,000 level, which began a protracted correction.
In June, the Fed raised the key rate by 75 basis points for the first time since 1994. The indicator reached 1.5–1.75%, and Bitcoin reacted with a brief rise to $22,000 before crashing below $18,000.
For details on how the Fed’s rate affects Bitcoin prices, see ForkLog’s educational cards.
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