FED To Put Off Interest Rate Hikes, Bitcoin Rallies: Here’s Why

Bitcoin is shaking off sellers of January 30, price action on late February 1 shows.

The FED Raises Interest Rates

The spark in BTC demand is because of Federal Reserve (FED) Chair Jerome Powell’s comments on the general economy and the central bank’s monetary policy stance going forward. 

In recent months, Bitcoin and crypto prices have been sensitive to inflation readings. News that inflation fell in December 2022 triggered a bull run, with analysts predicting the end of the FED’s hawkish regime in early February.

Surprisingly, after the FED raised rates, pushing the current fund rate to 4.75%, BTC and crypto prices fell. It was until an hour later when Jerome Powell took to the podium in a highly anticipated presser. 

Minutes after the chair began speaking, BTC prices rallied from $22,780 to over $23,500, adding about 3.5%.

The chair’s comments on inflation and labor expectations and the route the central bank plans to take in the next few months triggered demand across the financial markets, including Bitcoin. 

Most importantly, Powell relayed what was mostly expected by traders and investors.

The chair confirmed that inflation has been improving, decreasing in most core sectors, excluding housing. In December, when inflation dropped to 6.5%, it was the sixth consecutive time the critical metric has been tapering after peaking in mid-2022.

While dropping inflation is welcomed, the FED chair said the central bank needs to see more evidence that the critical metric will continue falling in months ahead. Since their intervention and hiking interest rates seem to work, the central bank will maintain a “restrictive stance for sometimes”.

Monitoring Inflation

Nevertheless, the FED maintains that ongoing rate increases would be appropriate to manage inflation. However, for inflation to fall, the chair adds, the economy has to register below-trend growth characterized by soft labor market conditions. 

Amid all this, the FED will monitor inflation and “stay the course until the job is done”.

Reducing inflation is likely to require a period of below-trend growth and softening labor market conditions. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

Deterioration of macroeconomic conditions wouldn’t be a concern for the FED because their goal is to see “sustained changes to broader financial conditions” in the long term.