The Federal Reserve raises interest rates by 25 basis points, meeting the market’s expectations.
Following the collapse of Silicon Valley Bank and Signature Bank, there was speculation of a pause rate hikes, which the Fed paid no heed to.
The crypto market reacted positively immediately following the release as Bitcoin price rose to $28,862.
The Federal Reserve decided to hike the interest rate by 25 basis points (bps) to 4.75%-5% at the March meeting, in line with the market’s expectation. In its policy statement, the Fed dropped the reference to "ongoing increases" and said that some additional policy firming might be appropriate.
The Fed also published updated FOMC members’ projections on rates, the so-called dot plot, which showed the majority of the board expects rates to be between 5-5.25% in 2023.
The interest rate increase was primarily due to the Fed's desire to continue its fight against inflation. Although the US February Consumer Price Index (CPI) decreased to 6.0% on a 12-month basis and the core CPI decreased to 5.5%, the inflation rate is still above the target rate of 2%. Along the same lines, the Fed said on March 22:
The Committee will closely monitor incoming information and evaluate its impact on monetary policy. The Committee estimates that some additional policy tightening may be appropriate to achieve a sufficiently restrictive monetary policy stance to return inflation to 2 percent over time.
The Federal Open Market Committee (FOMC) reversed its previous decision to lower the target rate to 5%-5.25%. Federal Reserve Chairman Jerome Powell also hinted at a 50 basis point increase in interest rates in his semiannual speech to Congress last month, where he said:
The latest economic data came in stronger than expected, suggesting the final level of interest rates could be higher than previously anticipated.
But soon the United States faced the banking crisis, which saw the demise of three major banks. Following the closure of Silvergate Bank, Silicon Valley Bank and Signature Bank were also closed by regulators due to the high rate of uninsured deposits and other risky investments. This raised the possibility of a lower rate hike that the Fed experienced.
Crypto market reacts positively
The crypto market showed erratic movements following the decision, with the price of Bitcoin rising 1% to trade at $28,862.
Ethereum price followed a similar path as the altcoin rose 0.5% to $1,811. Other top altcoins remained unchanged as Cardano price gained 1.3% to trade at $0.38. XRP also observed a similar shift, rising 1.63% to change hands at $0.44, and Binance Coin traded at $330.49, up 0.85% in the last hour.
