The Fed is meeting on Wednesday, and the market is bracing for a rate hike.
That’s because Jerome Powell, chairman of the US Federal Reserve, will announce the Fed’s approach to interest rates at its monetary policy meeting on Wednesday. If it does raise rates—as many expect—the move will be a huge deal for markets across the globe.
But why? Why does one small meeting by one small group of people have such far-reaching consequences?
The answer is simple: money. Money is what makes the world go round, and when you control who can have access to it and how much they get, you control a lot about how things shake out in society.
And it’s no secret that the US dollar is one of those currencies that everyone wants access to—and everyone wants to use as well. That means that if you’re going to invest in something or buy something with your money, you’re going to want some USDs lying around first so that it can become part of whatever transaction you’re trying to make happen.
It’s been a rough year for cryptocurrencies.
First, there was the collapse of the Bitcoin bubble in early 2018, which saw BTC lose about 80% of its value. Then there was the slow recovery, which ended with another crash: BTC fell below $4,000 in late June and has struggled to push back above that level.
These kinds of wild swings have made it difficult for many investors to feel confident in crypto markets. But when you look at the broader picture, there are some interesting trends happening in the crypto space that may point to a possible turnaround. And they all have one thing in common: U.S. monetary policy.
For the last year, cryptocurrencies have traded increasingly like equities, making the U.S. central bank’s monetary policy one of the most important drivers of their performance. And that means that if you want to know what’s going on with your crypto investments (or whether those investments are worth keeping), you need to pay attention to what’s happening with interest rates here at home.
The Fed said it would raise its benchmark rate to a range between 2% and 2.25%. It had been at 1.75% for two years. The central bank also lifted its growth forecast for this year and next year after strong job gains in January and February helped lift consumer spending, which makes up more than two-thirds of economic activity in the United States.
Still, some analysts are worried that the pace of interest rate hikes could be too fast for some borrowers whose debt loads have expanded rapidly since 2008 when the global financial crisis pushed many people into a deep recession that lasted until late 2009.
Analysts say a stronger economy means there may be less need for low rates that encourage people to borrow money and spend it on cars or homes or other goods and services that drive growth in an economy like the United States where consumer spending accounts for about 70% of overall growth annually.
Bitcoin price has struggled through the first few months of 2022 as central bank monetary tightening squeezes assets across the board. The Federal Reserve is widely expected to raise rates by 50 basis points, the biggest rate increase in 22 years, to temper runaway inflation.
Now, a veteran trader has warned that the price of bitcoin could fall as low as $28,000, $10,000 per bitcoin less than its current price, despite historical data suggesting May could be a strong month for bitcoin.
“I’m not trying to scare people,” said Peter Brandt, founder of Factor. “I’m just saying we’re in uncharted territory here.”
Bitcoin prices have already fallen nearly 30% since January 1, marking the worst start to a year in history and putting this year on track for another record decline.