US Fed Raises Interest Rate by 0.25%, Impact on Bitcoin?

The US Federal Reserve (Fed) has raised its benchmark interest rate by 0.25 percentage points to a target range of 3.75%-4.00%, the first increase since 2023.

According to blockchain media Decrypt, the Fed raised the federal funds rate from 3.50%-3.75% to 3.75%-4.00%. The move aligns with market expectations, as CME FedWatch indicated a 93% chance of a rate hike before the meeting.

The Federal Open Market Committee (FOMC) voted unanimously in favor of the decision. In its statement, the Fed noted that economic activity is expanding at a solid pace and employment growth matches labor force expansion, though inflation remains elevated. The central bank stated this move would help bring the inflation rate back to its 2% target.

Crypto markets overall fell by approximately 2.18% on the same day. Bitcoin initially rose to around $75,900 after the announcement before dropping back to about $75,100 within minutes, but held above the key support zone of $73,500-$75,600.

Recent economic data contributed to the rate hike decision. The August Producer Price Index (PPI) rose 5.4% year-on-year, up from July's 4.8%, with goods prices increasing 1.1% month-on-month, largely driven by energy costs. The Consumer Price Index (CPI) also rose 3.4% year-on-year in August, matching July's figure but showing a sharper monthly increase of 0.4% compared to 0.1% the previous month.

Major banks have shifted toward more hawkish stances. A Wall Street Journal survey this week showed most large banks, including Barclays, Citigroup, JPMorgan, Morgan Stanley, and UBS, expect an additional 0.50 percentage point tightening by year-end. Bank of America, Deutsche Bank, and RBC predict a 0.75% increase.

Oil prices surpassing $100 per barrel also contributed to the decision, with tensions between Iran and other nations increasing energy price pressures. The Fed had previously kept rates steady in July but split 9-3 on the vote, with three members advocating for a hike.

Political pressure continued as well. Former President Donald Trump had previously stated he would appoint someone who 'hopes to lower interest rates' before naming Jerome Powell as Fed Chair, though he urged independence. Powell chose to raise rates at his third meeting since taking office.

Senator Elizabeth Warren criticized the Trump administration's Iran-related conflict and tariff policies for pressuring the Fed, noting that households would face higher credit card and mortgage costs regardless of whether rates were raised or held steady.

Crypto markets had already been in a downward trend. Bitcoin traded around $75,200 before the announcement, far from its September high of $82,000. The previous day, Bitcoin faced selling pressure after the Clarity Act failed to pass Senate cloture vote. The Crypto Fear & Greed Index dropped from 69 to 51, moving from extreme greed to neutral.

The next Fed meeting is scheduled for October 27-28, with a follow-up on December 8-9 when the dot plot will be released, making it unclear whether this rate hike marks the final move of the year or the start of further tightening.