The Federal Reserve (Fed), as the central bank of the United States, has set policies to ensure and guide economic stability. As cryptocurrencies have gained significant importance in the financial world in recent years, the Fed’s interest rate increase and inflation fighting strategy can significantly affect these new tokens.
Fed’s Effect on Cryptocurrencies!
The Fed determines interest rates according to the economic situation. Increasing interest rates can generally slow down economic growth and increase borrowing costs. In this case, investors may turn to assets considered safer havens. Due to the fact that cryptocurrencies are outside the traditional financial markets, the direct impact of interest rates on cryptocurrencies may be limited. However, high interest rates can reduce investors’ interest in risky assets and make them more cautious about the volatility of cryptocurrencies.
However, the Federal Reserve’s interest rate hikes have caused a decline in the cryptocurrency markets. Just minutes before, Bowman, one of the Fed officials, gave a signal that the ongoing interest rate hikes would continue. In addition, emphasizing that the target for inflation data is still 2 percent, he said in his statements:
We are determined in our fight against inflation. Our inflation target is still 2 percent. I believe that additional interest rate hikes are needed to reach our target.
The Fed’s policy statements and economic indicators can determine the overall mood of financial markets. In addition, the Fed’s statements regarding interest rate hikes or inflation fighting strategies can have an impact on all financial assets, including cryptocurrencies. Especially considering that cryptocurrencies are still in an immature and unregulated market, reactions to the Fed’s policy decisions can be even more pronounced.
On the other hand, the Federal Reserve’s interest rate increases or inflation fighting strategies can also affect cryptocurrencies. However, due to the fact that cryptocurrencies generally operate independently of the traditional financial system, their effects can be limited. Nevertheless, the Fed’s policy statements and economic indicators can shape the future movements of cryptocurrencies and affect investors’ interest in these assets.
