The Federal Open Market Committee (FOMC) on Wednesday paused its benchmark interest rates between 3.5% and 3.75%, weighing the surging geopolitical escalations in the Middle East and ongoing economic turmoil. For crypto markets, the Fed’s decision to tighten liquidity creates a “lid effect,” forcing the market to trade sideways and stifling speculative rallies.
No Emergency Cut: Fed Holds Rates Steady
The Federal Reserve, during the policy meeting held on Wednesday, announced the plan to keep interest rates steady in the midst of geopolitical turmoil. The interest rate has remained unchanged from the target range of 3.5%-3.75% since December, signaling a neutral-to-bearish trend in the broader market to the investors. The Federal Reserve still plans for one rate cut this year, but expects inflation and economic growth to be higher than early projections.
Reflecting these pressures, the Producer Price Index surged by 3.4% year on year, exceeding the economists’ expectations of 2.9% with a sharp price climb driven by the Middle East escalations. The price of Brent crude climbed, followed by reports that Iranian oil facilities in South Pars and Asaluyeh were attacked. Michael Rosen, the Chief Investment Officer at Angeles Investments in Santa Monica, California, said that with inflation above the ceiling, the economy outperforming the trend in the midst of economic turmoil and geopolitical tensions, the Fed has no room to ease monetary policy.
The US market tumbled, followed by the Fed’s announcement of no immediate interest cut. The S&P 500 dropped by 1.36%, while the Nasdaq fell 2.44%, led by a 2.32% decline in the consumer discretionary sector. The sector performance exhibited an overall negative trend, with consumer staples and consumer discretionary dropping the most.
The US Federal Reserve, led by Jerome Powell, remains cautious about ongoing U.S.–Iran tensions, which may impact oil prices, economic growth, and inflation, and decides to make no immediate changes in the interest rate.
Fed’s Higher for Longer Rattles the cryptocurrency market
The US Federal Reserve’s announcement of a delay in the interest cut led the crypto market to face downward pressure, with bitcoin falling below $72,000 and prompting massive liquidations worth $450 million over the last 24 hours. Falling after three consecutive days, Bitcoin hovered around $71,000 on Thursday. Bitcoin dipped below the 50-day Exponential Moving Average (EMA) at about $71,089, signalling a bearish trend. The crypto market shed over $100 billion over the last 24 hours, followed by the Fed press conference. Bitcoin experienced massive selling pressure as whales transferred 44,459 BTC to exchanges and long-term holders sold 1,000 BTC, leading to a potential dip in BTC price.
Likewise, the major crypto coins like SOL and ETH experienced a massive dip in price, ahead of the Fed meeting, with a massive outflow. SOL’s price dipped from $94.21 to $89.76 while ETH witnessed 5.8% price drop over the past 24 hours, accompanied by significant selling volume. Fed’s cautious economic outlook and inflation concerns largely contributed to a challenging environment in the crypto market.
A higher for longer interest rate environment led investors to pull out their investment from highly volatile assets like Bitcoin to safer havens. The crypto market experienced a large dip in institutional inflows, followed by the Fed’s decisions on monetary policy, ultimately reducing the exposure of volatile assets. Additionally, the Fed’s cautious stance also led to the strengthening of the US Dollar, causing huge headwinds to cryptocurrencies. Overall, the Fed’s cautious economic outlook created a risk-averse environment for the crypto market, with investors increasingly shifting towards safer and high-yielding assets from the highly volatile assets.
