The Federal Reserve has raised interest rates for the first time since 2018 after months of promising to address inflationary pressure in the United States. The hike – a moderate 25 basis point increase – was immediately followed by Bitcoin falling under $40,000 again.
At the Federal Open Markets Committee meeting on Wednesday, the Fed cited rising concern over inflation in the context of supply chain difficulties and the new war in Ukraine as justification for its move.
In particular, the Fed believes the Russian Ukrainian conflict will lead to yet higher inflation, and to slower GDP.
Year over year inflation has been increasing every month since October, coming in at a 40-year high of 7.9% last month. Earlier in March, a Wharton professor urged the Fed to address such inflation to protect the US dollar.
Bitcoin – often cited as an inflation hedge or “digital gold” – immediately fell on the news. Trading above $40,400 prior to the meeting, its price has descended to $39,849 at the time of writing.
The DOW industrial average, NASDAQ, and S&P500 have also shredded major gains from Tuesday following the rate hike announcement.
According to the Fed, the Committee also “expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”. Many more rate hikes have reportedly been penciled in for later this year.
The 0.25% increase was approved in an 8 to 1 vote, with one member pushing for an even larger 0.5% increase.
“The median projection of the appropriate level of the federal funds rate is 1.9% at the end of this year,” said Chairman Jerome Powell in a follow-up press conference.