The United States Federal Reserve’s decision to maintain interest rates at 5.25-5.50% and the fading prospect of a rate cut in March have exerted selling pressure on Bitcoin. This move, announced on January 31, has also led to predictions of future challenges for US stocks and the cryptocurrency.
Fed’s Hawkish Stance Affects Risk Assets
At a press conference by the Federal Open Market Committee, the Federal Reserve Board emphasized the need for more assurance that inflation pressures were under control before considering any interest rate reductions. IG Markets analyst Tony Sycamore indicated that the Fed’s hawkish position could spell trouble for risk assets like US stocks and Bitcoin, particularly if upcoming earnings reports from major companies are disappointing.
The Federal Reserve Board’s statement highlighted the necessity for confidence in inflation moving sustainably toward the 2% goal before adjusting interest rates. They pointed to strong economic indicators, such as job growth and lower unemployment rates, as signs of a robust economy, yet remained cautious about the inflation outlook.
Consequences for the Crypto Market
Lower interest rates are generally seen as positive for cryptocurrencies and tech stocks, as they encourage borrowing and risk-taking. However, the Fed’s current stance has led to a negative shift in risk sentiment, with Bitcoin expected to face downward pressure in the market.
Despite the immediate bearish outlook, Sycamore suggested that investors might see a temporary rally in Bitcoin’s price before it settles back to mid-range levels, with an overall upward trend anticipated to resume thereafter.