The U.S. Federal Reserve raised interest rates by 0,25% Wednesday for the first time since 2018, and reported a total of six additional hikes this year. The move was expected as part of the Fed's strategy to contain current inflation, the highest in 40 years. The bitcoin market reacted moderately, although the Fed's announcement was expected to have a greater impact.
Interest and inflation in the US are rising
The Fed also raised its inflation estimate for 2022 to 4,3%, above the 2,6% target it set last December. A greater impact on Americans' finances is expected as a result of the expected increase in goods and services.
“Russia's invasion of Ukraine is causing significant human and economic hardship. The implications for the US economy are uncertain, but in the short term, the invasion and related events can create upward pressure on inflation and frictional pressures on economic activity, ”the Fed said in a news release. While it is possible that the Russian invasion could push inflation a little higher, inflation was already felt in January and early February of this year, when the highest inflation rates were revealed. of the last 40 years, as we have reported here.
Implications of rising interest rates
By raising interest rates, the Fed raises the cost of borrowing. If it is more expensive to borrow, people tend to save more, which reduces the amount of money circulating in the economy.
With less money in circulation, economic growth slows, but inflation falls in return.
The rise in interest rates has had a moderate impact between major market stocks and the price of bitcoin. The graph shows that, at the time of the announcement, bitcoin (quotation BTC), the S&P 500 and the Nasdaq all declined moderately, but quickly returned to pre-Fed levels. At the time of writing, the price of bitcoin is $ 41.306.
On February 10, we reported that inflation in January increased by 7,5% compared to January 2021, the largest increase in 40 years.
