Crypto Markets React as Federal Reserve Hints at Interest Rate Hikes

Federal Reserve chairman Jerome Powell has spoken and crypto markets have reacted. The U.S. central bank has started to make moves to maintain price stability as inflation soars.

On Dec. 15, Federal Reserve (Fed) chair Jerome Powell stated that “with inflation as high as it is, we have to make policy in real-time.” U.S. inflation rates are currently the highest they have been for four decades at 6.8% whereas the Fed’s target is just 2%.

To combat this runaway inflation the central bank stated that it plans to scale back its bond-buying program faster than it initially projected. This would clear the path for at least three interest rate hikes in 2022.

Major scale money printing and rampant inflation will ultimately devalue the greenback. Earlier this week, Citibank CIO David Bailin predicted that a dollar could be worth just 80-85 cents over the next decade.

Fed tapering bond purchases

Higher interest rates (they are currently at 0.25%) could hurt employment if mortgages and auto loans increase. Powell acknowledged this commenting “We don’t have a strong labor force participation recovery yet, and we may not have it for some time,” before adding “at the same time, we have to make policy now and inflation is well above target,”

The central bank will also stop adding to its almost $8.2 trillion stash of Treasuries and mortgage-backed securities by mid-March. This “tapering” of bond buying, which began in March 2020, has come three months before initial plans.

According to CNBC, Tom Lee from Fundstrat commented:

I think the band aid is getting pulled off. The market’s been waiting for this. It was selling off on the rumor and it’s time to buy the event,

Markets have generally acted positively to the news as it is a sign that the pandemic-induced stimulus packages are gradually coming to an end.

Crypto market climbs

Crypto markets have been buoyed by the news with total market capitalization increasing by $140 billion or around 6% over the past 12 hours.

Bitcoin made marginal gains and approached the $50,000 level but failed to break resistance there. It’s currently trading at $48,750 according to CoinGecko.

Ethereum made more progress adding 3.6% on the day to top $4,000 once again. Other crypto assets currently getting a boost include Solana (SOL) up 9.7%, Avalanche (AVAX) up 14.7%, and Chainlink (LINK) gaining 8% on the day.