Reserve

United

Jerome Powell

Chair

The correlation between the <a href="https://news.todayq.com/crypto-market-takes-hit-over-nycbs-unexpected-move/" target="_blank" rel="noopener noreferrer nofollow">virtual digital assets market</a> and the stock market went to hit an all-time high just before the major collapse of several banking institutions last year. The cash crunch situation erupted by the crumbling of banks led to a decline in this correlation. However, there are other factors that are responsible for injecting volatility into the market. Federal Reserve’s policy 
Investors and traders in the crypto market need to be tuned to the intricate dance between <a href="https://news.todayq.com/bitcoin-drops-below-36k-uk-cpi-data-signals-relief/" target="_blank" rel="noopener noreferrer nofollow">inflation rates</a>, and Federal Reserve interest rates. This understanding stands crucial for making informed decisions in the volatile crypto space.
The Federal Reserve, as the central banking system of the United States, maintains its benchmark interest rate to regulate the economy and stabilize inflation. As of now, the range for the benchmark interest rate is between 5.25% and 5.5%. However, the Federal Reserve is cautious about cutting rates until it is confident that inflation is moving sustainably towards its target. Fed’s target 
As reported, the Federal Reserve has a specific inflation target of 2% per year. It is measured by the price index for personal consumption. By setting a range for its federal funds rate, the Reserve aims to achieve an average inflation rate of 2% over time in the United States.
The decisions made by the authority over interest rates can have a direct impact on the crypto market. It is important to understand that maintaining or increasing interest rates often leads to a decrease in liquidity. While it also pushes an increase in borrowing costs for investors and businesses.&nbsp;
Any statement by the Fed Res can result in a decrease in investment and spending in the crypto market. Investors may choose safer assets with higher yields. On the other hand, when the authority lowers interest rates then it can stimulate investment and spending in the crypto market. This signals that borrowing becomes cheaper and more attractive. Impact on crypto market 
Inflation rates also have a significant impact on the crypto market. High inflation rates erode the purchasing power of a currency and can drive investors towards alternative assets like cryptocurrencies.&nbsp;
For example, if headline inflation, as measured by the Consumer Price Index (CPI) comes in hot or high then investors may seek refuge in crypto as a hedge against inflation. This increased demand for digital currencies can drive up their prices and market capitalization.
Recently, Bitcoin witnessed a dip following the Fed Res’s decision to keep interest rates unchanged in the 5.25%-5.50% range. However, this marked the first rate pause of 2024.&nbsp;
Despite solid economic expansion, the Federal Open Market Committee (FOMC) noted concerns about lingering inflation. It stated that a rate cut isn’t anticipated until increased confidence in inflation reaches the target of 2%. Bitcoin’s response shows its sensitivity to macroeconomic factors, highlighting a close relationship between traditional financial policies and the crypto market.
The correlation between inflation rates, interest rates, and the crypto market can be complex and multifaceted. Various factors come into play, including economic stability, capital flows, regulatory impact, and risk perception.&nbsp; What to expect? 
Understanding these correlations is essential for crypto investors and enthusiasts.
Federal Reserve Chair Jerome Powell indicated during a news conference that a March rate cut is improbable. Powell expressed the committee’s desire for more confirming data before considering any policy adjustments. Following his remarks, markets initially remained steady but later saw a decline.&nbsp;
The Dow Jones Industrial Average dropped over 300 points, Treasury yields fell, and futures pricing suggested a 64% chance of the Fed maintaining rates in its upcoming March meeting, according to CME Group calculations.
Crypto and oil markets have experienced contrasting responses amid changing interest rates. Major tokens like Bitcoin (BTC) and Ethereum (ETH) were initially adversely affected by the Federal Reserve’s rate hikes in 2022. However, it found support as the rate increase halted in 2023.&nbsp;
Despite concerns over crypto instability, traders sought refuge amid perceived milder future rate hikes. Conversely, commodities like oil faced downward pressure, influenced by higher rates and improved supply conditions. However, oil’s descent was cushioned by expectations of the Fed concluding its rate increases and supply cuts from petroleum-producing nations. As rates peaked in October 2023 and started declining, riskier assets, including cryptocurrencies, saw a resurgence.
The global crypto market is still standing tall with a market cap of $1.65 trillion with a trading volume of $40 billion, at the press time.
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Interest Rates, Inflation, Crypto: Makers and shakers

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