The Fed will announce its interest rate decision on Wednesday, March 22 at 21:00. What is the interest rate expectation? How are BTC, SHIB and ETH affected? Let’s take a look at the current analysis…
Experts’ expectations from BTC, ETH and markets before the Fed rate decision
David Brickell from crypto liquidity network Paradigm included the Fed rate expectation in his tweets on Tuesday. Brickell expects the world’s most powerful central bank to make a move towards the recovery of the banking sector instead of fighting inflation. “The Fed needs to at least pause, or the banking problems will escalate,” he wrote in his latest post. “Don’t change interest rates on Wednesday,” he said.
cryptocoin.com As we mentioned, most experts expect the Fed to keep interest rates stable due to the banking crisis. CME Group’s estimator of interest rates says that there will be a 37.3% probability of a fixed interest decision at the meeting tomorrow.
On March 9, shares of SVB Financial Group, SVB’s parent company, fell 60%, pushing other banking shares down, triggering fears of a 2008-like financial crisis. The prospect of ‘low interest’ has been growing since regulators began getting Silicon Valley Bank’s collapse under control on March 10.
Since then, Bitcoin (BTC) has rallied over 40%, partly on hopes that recent bank failures will force the Fed to abandon rate hikes. The central bank has increased rates by 4.5 percentage points since March 2022.
Fed rate decision may disappoint
Despite the recent rally in the crypto market, some observers expect the Fed to disappoint popular expectations when it announced its interest rate policy on Wednesday. Brian Rudick, senior strategist at crypto exchange and liquidity provider GSR, said: “Our best guess is that the Fed will hike 25 basis points given rising inflation.”
A 25bps rate hike could push the benchmark borrowing cost into the 4.75% – 5% range and see traders position their bullish risks to Bitcoin for a pause. “The Fed still sees the banking sector as well-capitalized and will want to emphasize that the war on inflation has not been won and remains very high, that 25 basis point rate looks very likely,” said Marc Ostwald, senior economist at ADM.
On Sunday, Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen said the US financial system remains resilient and the banking system’s capital and liquidity positions are strong. Ostwald added that it would be more difficult to restart rate hikes if the Fed pauses the tightening cycle now.
How does the fixed rate decision affect BTC and other markets?
Those dealing with risky markets addicted to liquidity may interpret the pause as a signal for future rate cuts and reflect the same on prices. This could make it difficult for the Fed to continue raising interest rates without shocking the markets.
Michael Englund, chief economist at Action Economics, says he will follow the lead of the European Central Bank. Last week, despite the market chaos caused by the instability of CS and fears of contagion, it increased interest rates by 0.5 percentage points to 3%, adhering to its fight against inflation. According to their statement, “Our forecast is for an increase of 25 basis points and we continue to assume 25 basis points increases in May and June.
“If the Fed raises rates, it will actually contribute to the idea that the banking crisis is under control by the Fed and could contribute to financial market stability,” Englund said. However, the fact that bond prices will fall and yields will be priced through tighter policy will be reconsidered. Also, the dollar will rise,” he said.
Fed may ignore banking crisis
Since the collapse of the SVB, the Fed has created an emergency loan package for emergency banking loans and increased the frequency of dollar swap lines from daily to weekly to support its global financial system. Traders who expect the Fed to announce the end of quantitative tightening will likely be disappointed as well.
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