Fed Set to Increase Interest Rates? How Will Crypto React?

The U.S. Federal Reserve (Fed) official believe that inflation is still at a problematic level. How will the crypto market react if the Fed raises interest rates in May?

As the upcoming Federal Open Market Committee (FOMC) meeting on May 3 approaches, discussions about the impact on crypto markets have sparked again. The Fed increased the interest rate by 0.25 basis points (bps) in March. After nine consecutive aggressive interest rate hikes, the current rate stands at 4.75-5%.

Inflation Still Too High: Fed Official

While there were some expectations of no increase, a recent statement by John Williams, the Federal Reserve Bank of New York President, crushed them. According to WSJ, he said, “Inflation is still too high, and we will use our monetary policy tools to restore price stability.”

The March’s US Consumer Price Index (CPI) came in at 5% year-on-year growth, which is still far from the Fed’s target of 2%. According to the CME Group, there is an 80.2% probability of a 25 bps interest rate hike in May.

How Would Bitcoin React to Interest Rate Hike?

Neel Kukreti, a crypto analyst behind the YouTube channel Crypto Jargon, believes that the outcome of a 25 bps increase is unlikely to cause a substantial decrease in the price of Bitcoin. He told BeInCrypto:

If the result is as expected by the market, there shouldn’t be any significant drop in the price of Bitcoin as currently, the $28k zone is strong support with $26k acting as the next support. 

So unless there is any significant announcement of the 50 bps+ rate hike, the price of Bitcoin should remain more or less within these ranges. The worst-case scenario for Bitcoin depends on the price at the time of announcement as near critical support chances of a ripple effect dump will increase. But even at 50bps, I don’t expect BTC to break 20k.

Give the World a Chance to Catch Up

The Fed’s aggressive interest rate hike to over 4.75% in one year has had serious repercussions. While many also blame the recent failure of a number of banks on the Fed’s rapid increase in interest rates. 

Claudia Sahm, the former Fed executive, believes the agency should pause the interest rate hike and give the world a chance to catch up.

She told Barron’s, “The Fed raised interest rates 4.75 percentage points within one year – the fastest increase since [former Fed Chair Paul] Volcker lifted rates in the early 1980s. Powell has been clear that the economy has started into a disinflationary cycle.”

She adds, “Going too fast risks the strong recovery in the labor market. That isn’t a risk the Fed should be taking.”

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For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.