Bitcoin Drops As Federal Reserve Announces No Rate Cuts In June
The central bank did not follow its global counterparts in lowering interest rates, declaring its inflation fight not yet over.
The Federal Reserve announced on Wednesday that it would not change its policy interest rate despite increasing political pressure to change course.
No Rate Cuts Yet, Says Federal Reserve
In a press release, the Federal Reserve declared that job growth and economic expansion have “remained strong” while inflation has only seen “modest progress” towards its 2% target.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the statement read.
This comes after the U.S. Bureau of Labor Statistics (BLS) released its latest inflation CPI inflation figures, showing 3.3% annualized inflation in May. That’s slightly above the 3.4% inflation reading in April, and a notch above what economists were expecting, according to Reuters .
“Indexes which increased in May include shelter, medical care, used cars and trucks, and education,” wrote the BLS on Wednesday. Among other things, costs for new vehicles, communication, and recreation dropped over the month.
A lower inflation reading was a signal to markets that the Federal Reserve is getting closer to its 2% inflation target, and thus could be more willing to lower its policy interest rate back down to standard levels. That’s bullish for both stocks and crypto, which have historically performed well when it’s cheap for investors to borrow money.
Bitcoin’s Price Reaction
Bitcoin surged 3% on Wednesday morning following the May CPI print but dropped slightly after the Fed’s largely expected no-cuts announcement.
While the central bank said after its last meeting that it “does not expect it will be appropriate to reduce the target range” anytime soon, certain developments in June gave reason to believe the Fed might hesitate.
One of those developments was the newly announced pivots from both the Bank of Canada and the European Central Bank, which both lowered their main interest rates by 25 basis points this month, citing an “improved inflation outlook.”
Furthermore, U.S. Senator Elizabeth Warren sent a letter to Fed chairman Jerome Powell on Tuesday urging him to lower rates. “Reducing rates will reduce the cost of renting, buying, and building housing, lowering Americans’ single highest monthly expense,” she argued .
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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