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Following the Fed announcement on Wednesday, the US equity market corrected leading to a similar drop in crypto assets. Bitcoin dropped 2% and Ether by 6% in the last 24 hours.
On Wednesday, September 21, the US Federal Reserve announced a 75 basis point rate hike marking a 15-year high. The announcement was quite as expected by Wall Street.
The Fed explained its reasons behind its aggressive rate hike. It also added that the Russia-Ukraine war has put further inflationary pressure on the global economies. The US central bank added:
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”
For the month of August, the US CPI stood at 8.3%. This was 0.1% higher than the inflation figure from the previous month. Now, the September CPI information will arrive on October 13 next month. It will be key data that will determine the future trajectory of rate hikes.
Fed Chairman Jerome Powell said that they would continue with the rate hikes until the inflation comes under control. The Fed added:
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate”.
While the US market remained volatile during Wednesday’s trading session, it ended in the red. Dow Jones (INDEXDJX: .DJI) dropped 1.7% or 500 points ending the day at 30,183.78. The S&P 500 (INDEXSP: .INX) also corrected by 1.75% ending the day at 3,789.93. The S&P 500 is now down by more than 21% from its all-time high earlier this year.
Impact on Crypto
The Fed rate hike is likely to bring selling pressure on US equities and crypto will most likely follow suit. On Wednesday, the Bitcoin price dropped under $19,000 and is currently trading at $18,707 with a market cap of $358 billion.
Also, the world’s second-largest crypto Ethereum (ETH) has been under severe correction. Since the Merge event last week, ETH has corrected by more than 20% on the weekly charts. Post the Fed rate hike, the ETH price has corrected another 6% and is currently trading at $1,262 with a market cap of $154 billion. Speaking to The Block, James Malcolm, head of FX strategy at UBS said that “now the Merge is over and activity in the space has sagged back it’s difficult to envisage a new catalyst for crypto beyond a simple recovery in risk assets”.
On the other hand, he added that the crypto regulations will be a key area of focus for the market ahead.