On Wednesday, the Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75% to 4%, marking its first rate hike since 2023. Following the announcement, Bitcoin briefly rose to around $76,000, but the broader crypto market remained weak for the day.
The market has already priced in the rate hike.
According to CME’s FedWatch tool, traders’ probability of this rate hike has risen to 93% ahead of the meeting, up from under 50% a month ago. All 12 members of the Federal Open Market Committee supported this decision.
The Federal Reserve stated in its announcement that U.S. economic activity continues to expand at a solid pace, job growth is broadly in line with labor supply, but inflation remains elevated. This rate hike aims to bring inflation back to the 2% target more promptly.
Inflation and rising oil prices are increasing pressure.
Last week’s inflation data reinforced the case for rate hikes. The U.S. Producer Price Index rose 5.4% year-over-year in August, up from 4.8% in July. Goods prices increased 1.1% month-over-month, with rising energy costs being the primary driver.
The Consumer Price Index rose 3.4% year-over-year, unchanged from July, but the month-over-month increase accelerated from 0.1% to 0.4%. Core inflation, excluding food and energy, also rose from 0.2% to 0.3% month-over-month. Oil prices have rebounded above $100 per barrel, further intensifying inflationary pressures.
Bitcoin briefly rose to $76,000.
Before and after the interest rate decision, Bitcoin fluctuated between $75,000 and $75,800, then briefly rose to $76,000. In comparison, the broader cryptocurrency market declined by approximately 2.18% on the same day.
The report noted that Bitcoin had previously retreated from its near $82,000 high in September. Meanwhile, the U.S. Senate's failure to advance the procedural vote on the Clarity Act also weighed on market sentiment. The Fear & Greed Index has now dropped to 51, showing a noticeable cooling from 69 the previous day.
Follow up on the October and December meetings.
At the July meeting, the Fed held rates steady, but the vote was 9 to 3, with several officials advocating for a rate hike. Coupled with stronger-than-expected August employment data, the committee ultimately shifted toward tightening policy.
Next, the market will focus on the signals regarding the latest interest rate path announced at the meetings on October 27–28 and December 8–9 to determine whether this rate hike is the final tightening of the year.