Prospect of further Fed rate rise depresses crypto market

July FOMC minutes reveal Fed’s determination to tackle runaway inflation through higher interest rates

Fed                                 
The US Federal Reserve raised rates by 0.75 percentage points in July - Photo:Shutterstock
                                

The cryptocurrency market declined on Thursday as investors and traders reacted to the release of the minutes from the latest US Federal Reserve Open Market Committee (FOMC), which revealed that the US central bank is willing to continue its current strategy of tackling runaway inflation through raising interest rates and reducing its balance sheet. 

The minutes from July’s meeting  said: “Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee’s goals.”

The US consumer price index rose by 8.5% year-on-year in July. Although this was 0.2 percentage points down on June’s CPI rise, the figure remains close to a 40-year high. 

The Fed, having raised interest rates by 0.75 percentage points to the 2.25%-2.5% range in July, is expected to continue pushing interest rates higher, though potentially at a slower pace. 

The FOMC minutes also revealed the central bank’s intention to double the rate of its balance sheet shrinkage in September. 

Crypto investor sentiment dips

Cryptocurrencies, which have largely been correlated with US equities for most of 2022, fell in value after the release of the minutes. Bitcoin and Ethereum traded down by 0.8% and 0.6% at $23,482 and $1,851, respectively. 

A number of individual scandals have engulfed the once-burgeoning sector in recent months, such as the bankruptcies of lenders Voyager Digital and Celsius and the collapse of the crypto hedge fund 3AC. 

However, the decline in crypto prices seen throughout 2022 so far can be largely attributed to the cycling out of speculative investments engendered by the end of the era of record-low interest rates. 

With rates set to rise yet further, cryptocurrency investor sentiment may well decline further. 

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