The Fed is back in the halls of Washington deciding on the fate of the global economy and this time they are moving forward with another rate hike of 75 basis points. This is yet another sign that the central bank of the United States is putting the breaks on the financial engines, to give the economy some time to cool off from the 40-year-high inflation of 9.1%.
In an official statement from Chairman of the Fed, Jerome Powell, the banker said,
“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate.”
What does this mean for the crypto community at large?
Bitcoin and Ethereum both reacted favorably to the news of the rate hike, primarily because this means that inflation is being actively addressed. And a better performing economy means a better performing crypto market.
Gone are the days that Bitcoin serves as a hedge against inflation, indeed for many years it performed contrary to the equities market, but now because of the rise of institutional investment, there is a direct correlation between the crypto markets and the stock market.
What Will The Fed Do Next?
The Fed may or may not be finished tightening fiscal policy for the year, analysts believe this is just the beginning. Unless the United States shows signs of easing when it comes to inflation, nothing will change on behalf of the Fed.
They will continue to raise interest rates every time they meet until the American economy and businesses can demonstrate that they are no longer raising the prices of both their services and goods. This can be a good thing in the long run, because businesses will be forced to relook at their spending habits. Aiming for a tighter budget overall can propel the right companies forward.
And as we have seen with the fall of Terra, Three Arrows, and Voyager, the businesses built on sand come tumbling down as soon as the recession hits.
A Recession Looming
Analysts on both sides of the field worry that a recession is on the horizon and if so, things could get significantly worse for the crypto community.
As of the time of writing, The Bureau of Economic Analysis GDP print showed the U.S. economy shrank by 1.6% in the first financial quarter, and many economists fear that the economy could post a decline in the second quarter. A recession has historically been identified by two consecutive quarterly declines in GDP.
The GDP numbers for the second quarter of the year will be released this week, and the White House has seemingly been preparing the public for the announcement in advance.
Last week, it published a blog post on the matter, before sharing an interview transcript in which Treasury Secretary Janet Yellen argued that two consecutive quarters would not indicate that the country was in a recession because the Bureau of Economic Analysis looks at “a broad range of data.”
President Biden said on Monday that the U.S. was “not going to be in a recession” in response to a reporter’s question about tomorrow’s GDP print, and yesterday his economic advisor Brian Deese reiterated Yellen’s argument in the White House’s press office.
So what do you think, my fellow crypto reader? Do we find ourselves in a recession and if so how is the rest of the crypto market at large going to respond to the fiscally frightening news?