Bitcoin Above $42K Again as Fed Holds Interest Rates Steady

Crypto Breaking News

Dec 13

Bitcoin gained some upward momentum, picking up 0.8% in the past hour, following an announcement from Federal Reserve officials that the central bank would leave interest rates unchanged.

At the time of writing, Bitcoin is trading for$42,383.95, according to CoinGecko. Ethereum also responded positively to the news, having picked up 1% in the past hour. It's currently changing trading for $2,234.

"The [Federal Open Market Committee] seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run," the FOMC said in a statement. "In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.5%."

Federal Reserve Chairman Jerome Powell said during a press conference that the U.S. economic recovery "has progressed more quickly than generally expected, and forecasts from FOMC participants for economic growth this year have been revised up since our September Summary of Economic Projections."

"Even so," Powell added, "overall economic activity remains well below its level before the pandemic, and the path ahead remains highly uncertain."

Investors were expecting to hear that rates would be maintained. Ahead of the announcement, the CME FedWatch tool showed investors believe there's a 98% chance that the Federal Reserve would leave interest rates unchanged. The tool works by tracking the prices of Fed funds futures contracts, which investors use to speculate on or hedge against changes in rates.

Crypto investors tend to take the FOMC lowering rates or leaving them unchanged to be a bullish sign for markets.

That's because the Bitcoin (BTC) price has historically correlated with risk equities and central bank policy. The more favorable credit conditions are in the economy, the more likely BTC is to pump. When interest rates are low, investors are more likely to take their dollars and put them into risk assets, such as stocks and crypto. When rates are high, investors flee back to dollars.

Case in point: Bitcoin rose aggressively to new highs from March 2020 to early 2021 after the Federal Reserve lowered its benchmark interest rate to just 0.25%. And in July, traders breathed a sigh of relief while—despite news that the Fed planned to raise rates—Bitcoin and Ethereum didn't immediate take a dive.

The Fed started aggressively raising rates in 2022 to try and control 40-year high inflation. It hiked them by 75 basis points four times—which negatively impacted the value of stocks, equities and crypto.