Federal Reserve expected to raise basic funds rate by as much as 50 basis points next week
Over the last week or so I have noticed exchanges, both traditional and crypto, bleeding value. I am sure I am not the only one who noticed that.
Now we have a tentative explanation as to what may be behind that. Apparently, the Fed is expected to raise the funds rate (the base borrowing rate) bu 50 bps (basis points). To be honest with you, I had no idea what a basis point is. It turned out it is just a 1/100, or 1%, of 1% (or, if you want to think of it this way, 0.0001 or 1/10,000 of the whole). So the jump forecast for the next week is 0.5%, whereas the one that took place in mid-March was 0.25%.
The hypothetical connection between a higher base rate and less investment into stocks or crypto makes sense. Higher rates makes it possible to lend your cash out at higher raters, and investors may choose that over investment into stocks or crypto. Plus, there may be an element of a panic sell-off involved here.
Let's see what happens next week. I suspect once the hike is announced and the situation is more clear there will be a rebound in interest in crypto and stocks.
References
Fed Expected to Raise Benchmark Interest Rate Aggressively, Dutch Bank ING Predicts a 50bp Hike and a QE Tightening Announcement
Jamie Redman, Bitcoin.com, 1 May 2022
Fed hikes 25bp with many more to come
ING, 16 March 2022
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The FED will continue to raise the interest rate, and the crypto market will continue to bleed? People are searching for a safe port. I think the cryptocurrencies still don't have that trust yet.
Oh, no, if that is what is going on, that is a temporary process.
Once enough people have invested into new loans at higher rates, etc. the crpyto and stocks will see more investment too.