Bitcoin bounces back after FOMC meeting
Federal Reserve accelerates support taper and signals three rate hikes in 2022
Bitcoin staged a moderate recovery on Wednesday evening, reacting to the US Federal Reserve’s decision to speed up the rate at which it will end its Covid-era bond purchase programme.
The world’s first and largest cryptocurrency had slipped as low as $46,707 on Wednesday, as markets anxiously awaited the resolution of the Fed’s Federal Open Market Committee (FOMC) meeting.
The US economy has experienced levels of inflation unknown in decades, with producer prices jumping by a record 9.6% year on year in November and consumer prices rising by 6.8%, the largest annual rate increase in almost 40 years.
According to the Commerce Department, the world’s largest economy grew by just 2.1% in the third quarter, a marked loss of momentum from the 6.7% GDP increase seen in the preceding quarter.
Following the two-day meeting, the central bank said it would end its coronavirus-era bond purchase programme in March of next year, used to inject cash into the beleaguered Covid-hit economy.
The Fed signalled its intention to implement three, quarter-percentage-point interest rate increases by the end of 2022. The Fed Funds Rate remained unchanged at its record-low level of 0.25%.
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Having argued for much of the year that inflation above the bank’s 2% target would prove to be “transitory”, Fed chairman Jerome Powell admitted in a news conference: “The inflation that we've got is not at all what we were looking for in our framework.”
Throughout the year, Powell had also identified a healthy labour market as a prerequisite for any rate hike. However, in light of the latest inflation data, this belief has moderated.
‘We have to make policy in real time’
Indicating his preparedness to raise rates even if the job market stagnates, Powell said: “I certainly would not in any way want to foreclose the idea that the labour market can get even better. But with inflation as high as it is, we have to make policy in real time.”
Addressing the fact that a number of the central bank’s most important projections have this year failed to come true, Powell observed: “People will judge in 25 years whether we overdid it or not. The reality is that we are where we are, and we think our policy is the right one for the situation that we’re in.”
By 11:50 (GMT) on Thursday, bitcoin was trading at $49.368, 5.7% above the low to which it sank on Wednesday.