Fed Approves Half-point Interest Rate Hike, Crypto Trades Like Big Tech

The Fed is raising interest rates and shrinking its balance sheet to combat the highest inflation in four decades


Jerome Powell, chair, Federal Reserve, Blockworks Exclusive Art by Axel Rangel


key takeaways

  • Get used to half-point hikes, Powell said
  • Crypto is trading like a big tech stock, and risk assets don’t perform well with rising rates, analysts warned

The Federal Reserve moved to increase interest rates by half a percentage point Wednesday, a move the market largely anticipated as inflation continues to run more than percentage points higher than the central bank’s target. 

The Fed also announced its plans to reduce its $9 trillion asset portfolio, starting by allowing bonds to mature without reinvesting the proceeds into new securities, as opposed to selling them to the open market. 

“Inflation is much too high,” Fed Chair Jerome Powell said during a press conference following the release of the statement. “It is essential we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”

Equities were largely unchanged following the announcement, with the Dow Jones Industrial Average rising 0.4%, the S&P 500 remaining flat and the tech-heavy Nasdaq losing 0.5%

“50 basis points was priced in the market, so that was expected,” Jeffrey Howard, head of institutional sales and business development at OSL, said. “The market rallied initially and then has sold off just a little bit since then because there are some more hawkish comments coming out regarding a potential 75 basis point hike on the next meeting.” 

The committee is not “actively considering” a 75 basis point hike, and another 50 basis point increase should be expected if current inflation and market conditions continue, Powell said. 

Bitcoin and ether rallied on the news, rising about 3.5% and 1.2%, respectively. Cryptocurrencies have recently been trading in line with equities, similar to a big tech stock, Howard said.

“Market sentiment is very bearish, not only on tech stocks, but also on risk assets in general,” Howard said. “Risk assets don’t do well in a rising rate environment, and so in general, I think the market is bearish.”

Despite widespread concern from economists that the Fed was too slow to act on inflation, Powell is confident that the central bank can hold off a recession. 

“I think we have a good chance to restore price stability without a recession,” he said. “I see a strong economy now. I see a very strong labor market, for example, businesses can’t find the people to hire…typically, in a recession, we have unemployment.” 

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