On Wednesday, June 15th, the Federal Reserve raised its interest rate by three-quarters of a percentage point, making it the highest increase in interest rate in 28 years. The last time interest rates in the US sprung so high was in 1994, when the Fed tried to cool off the recession.
Commenting on the rate hike, Jerome Powell, the Chair of the Federal Reserve said:
Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common. Decisions will be made meeting by meeting and we (the Fed) will continue to communicate our intentions as clearly as we can.
The hike in interest rate was a move to regulate inflation in the United States. The US economy has seen personal expenditure inflation of 5.2% so far this year, which is significantly higher than the projected 4.3%.
Bitcoin and Safe Havens React to the News
Following the announcement, Bitcoin’s volatility skyrocketed. The crypto asset delved as low as $20,300, before bouncing back up in less than an hour. Bitcoin gained close to 10% from its hourly low, at the time of the announcement. Although the cryptocurrency eventually returned to its roots, it touched the $23,000 mark in the late hours of Wednesday.
Ethereum and other altcoins also experienced high volatility after the announcement. Interestingly, significant value appreciation was also noticed in the stock markets. It wasn’t unusual to see crypto-assets and stocks react to the Fed’s decision.
The Long-Term Effect of the Hike
A hike in interest rates usually discourages borrowing and investing. Thus, the US economy will have lesser money to spread on investments, reducing traders’ exposure to the crypto and stock market. We can expect a decline in the general financial markets in the coming months. However, as Powell emphasized, the rate is still open for review in the coming months. The effect of the recent adjustment on the economy will determine whether further revisions will trigger the Fed to increase or decrease interest rates.