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Fed Leaves Interest Rates Unchanged, But More Hikes Still on the Table – Here is How Bitcoin (BTC) Reacted

Joel Frank
Last updated: | 3 min read
US Federal Reserve Badge / Source: Adobe

As expected, the Federal Reserve (Fed) left benchmark interest rates in the US unchanged at 5.25-5.5% on Wednesday.

Bitcoin (BTC) fell just over 1% and was last trading just under $27,000, though still remains fairly close to monthly highs.

Despite the pause, Fed Chairman Jerome Powell said in his post-policy announcement remarks that another interest hike later this year remains possible, with analysts thus referring to Wednesday’s Fed announcement as a “hawkish pause”.

In the Fed’s updated dot-plot – a chart released quarterly that summarizes where Fed policymakers project US interest rates will be in the coming years – 12 of 19 Fed policymakers predicted another 25-bps interest rate hike this year.

The new dot-plot signaled that Fed policymakers expect just two rate cuts in 2024, down from the previous projection of four.

Fed policymakers also upped their growth expectations for the US economy, expecting growth of 2.1%, reflecting increased confidence at the central bank that a “soft-landing” for the US economy can still be achieved.

A “soft landing” is defined as the Fed managing to bring inflation back under control with its interest rate hikes without pushing the economy into recession.

The updated dot plot and economic projections appear not to have surprised the market much, with macro investors having seemingly spent the last few week pricing in a higher-for-longer interest rate scenario from the central bank.

The US Dollar Index (DXY) help above 105, close to six-month highs, while the US 2-year government bond yield held above 5.1% and close to 22-year peaks.

Bitcoin Market Little Affected By Fed Policy Decision

The latest policy announcement appears not to have impacted sentiment in the Bitcoin market too much.

While the Fed’s sudden policy shift towards an aggressive tightening cycle in 2022 was a major driver of last year’s Bitcoin bear market, macro themes have had less impact on the cryptocurrency this year.

Given good progress on bringing US inflation back to the Fed 2.0% goal in 2023, a sense that the “worst is behind us” when it comes to Fed monetary policy tightening has seemingly led to a sense of calm in the crypto space, at least, with regards to the macro outlook.

Bitcoin seems comfortable with the idea that the Fed might hike interest rates one more time this year, likely due to continued expectations for the start of a new interest rate cutting cycle in 2024, even if that cutting cycle is now expected to be less aggressive.

Bitcoin traders are now trying to assess whether the cryptocurrency can muster up sufficient price momentum to break out of its recent multi-week $25,000-$28,500ish range.

Price Risks Tilted to the Upside

Indeed, the cryptocurrency appears to now be stuck in something of a no man’s land, hovering in the middle of this aforementioned range in the $27,000s and just below its 200DMA.

If tail risks materialize, like another inflation surge that forces more than one further interest rate hike from the Fed, or another major crypto exchange collapse, a drop back to the low $20,000s, or even lower, remains a possibility.

US authorities continues to dig into Binance’s affairs with the SEC currently suing the exchange over operating illegally in the US and over accusations of fraud – a Binance collapse would be a crypto catastrophe thanks to their dominant market position.

But tail risks aside, with Bitcoin well established as a crypto safe haven (there is no risk the US SEC will label it a security) and spot ETF approvals expected in the US in the coming quarters, price risks remain tilted to the upside.

A break above $28,500 could be the catalyst for a steady grind back to 2023’s highs, as investors eye another upcoming bullish in the form of next year’s Bitcoin halving.