Policy on hold, rate hikes end.

On Wednesday, the U.S. Federal Reserve decided to maintain its benchmark fed funds rate range at 5.0-5.25%. This decision was made to allow time for the impact of its previous monetary tightening efforts on the economy to be assessed. The Federal Open Market Committee (FOMC) of the Fed made this move, which was widely expected by the markets. Following the news, the price of bitcoin (BTC) remained relatively unchanged at just under $26,000.

The Fed began tightening monetary policy in March 2022 to control inflation, which was then running at an annual pace of more than 8%. It eventually hiked rates for 10 consecutive meetings, bringing the fed funds rate from 0-0.25% to the current 5.0-5.25%. Inflation has been gradually slowing over the past year, with the Consumer Price Index (CPI) report for May showing a rate of 4%, the slowest in two years. Although this rate is still above the central bank’s target of 2%, the Fed has reminded that monetary policy often works with long lags, and as recent rate hikes work their way through the economic pipeline, inflation is likely to fall further.

The Fed released its latest quarterly economic projections alongside the rate decision. Members now see a terminal fed funds rate of 5.6% in 2023, compared to the 5.1% expected in March. The terminal fed funds rate for 2024 is expected to be 4.6%, up from 4.3% anticipated in March. The Fed also expects headline inflation to end at 3.2% in 2023 and 2.5% next year, compared to the March projection of 3.3% and 2.5%, respectively.

The Fed’s aggressive series of interest rate increases is among the numerous reasons for the bitcoin bear market. The crypto’s price has dropped from an all-time high near $69,000 in late 2021 to the current $26,000 area. However, the central bank’s decision to potentially take its foot off the monetary brake is seen as a positive for bitcoin in 2023 and beyond.

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Although the Fed’s decision to maintain the current rate range suggests more rate hikes are coming this year, there is currently a 70% chance of another 25 basis point move higher at the Fed’s next meeting in July. Federal Reserve Chair Jerome Powell’s post-meeting press conference will provide more insight into the decision.

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