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Crypto markets remain glued to Federal Reserve policy announcements
Friday June 14, 2024 5:57 a.m.
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In a highly anticipated decision, the Federal Reserve’s policy committee, known as the Federal Open Market Committee (FOMC), decided to keep interest rates steady at its recent meeting.
Each day, Coinrule will review the state of the digital asset market for Blockbeat, your home for news, analysis, opinion and commentary on blockchain and digital assets.
In a highly anticipated decision, the Federal Reserve’s policy committee, known as the Federal Open Market Committee (FOMC), decided to keep interest rates steady at its recent meeting. The move comes amid ongoing concerns about inflation, but the latest figures show signs of easing. As a result, markets, including cryptocurrencies, are bracing for changes.
The FOMC is a key player in setting US monetary policy. It meets regularly to decide on interest rates, with the aim of balancing job growth and price stability. At its last meeting held on June 12, 2024, the committee kept the target interest rate unchanged between 5.25% and 5.50%. This decision, although expected, was taken taking into account the evolution of inflation. Recent data shows that inflation increased by 3.3% over the past year, with a slight increase of 0.2% in May. This was enough to calm the markets and raise hopes of possible rate cuts expected later in the year.
Cryptocurrencies have had a rocky relationship with Fed policies. When the Fed began aggressively raising interest rates in 2022 to control inflation, the crypto market experienced a severe downturn. Higher interest rates make borrowing more expensive, leading investors to pull out of risky assets like Bitcoin and Ethereum. However, the recent pause in rate hikes has brought a breath of fresh air. After the latest CPI report, which hinted at slowing inflation, Bitcoin and Ethereum both jumped around 4%, with Bitcoin briefly touching the $70,000 mark before stabilizing slightly lower. Traditional markets also reacted to this event with respective increases in the S&P 500 and Nasdaq Composite indices of approximately 1% and 2% following the announcement.
Looking ahead, the crypto market is at a critical point. The Fed’s firm hand on interest rates suggests a period of potential volatility. While CPI figures suggest a slowdown in inflation, there is speculation that rates will be cut in the near future. This could introduce fluctuations in cryptocurrency prices. Interestingly, most of the recent cryptocurrency price drops have already eliminated liquidity on the downside, meaning there is less downward pressure on prices. This shifts the focus to the upside, suggesting the market could see more upside movement if volatility arises.
But despite these short-term possibilities, the medium-term outlook for cryptocurrencies remains uncertain. The market could continue to move sideways, waiting for a new trigger to set the direction. The Ethereum ETF is a candidate to keep in mind as a catalyst for significant upside. Approval of this asset could potentially funnel billions of dollars to the Ethereum blockchain. This would not be a game changer for ETH alone, as it may also represent an opportunity for a significant altcoin rally.
Ultimately, the Fed’s current stance offers a moment of calm but leaves the door open for wilder swings to come. As the Fed balances inflation control and economic growth, crypto investors must remain vigilant, ready for a market that could swing one way or the other, influenced by traditional financial policies and the unique dynamics of digital assets.
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