How Will Bitcoin Respond to Another 2023 Rate Hike by the Fed?
The latest Summary of Economic Projections from the United States Federal Reserve, released this week, offers valuable insights into the Central Bank's perspective on interest rates and the economy.
Federal Reserve officials are leaning toward another interest rate hike this year.
A recent report suggests that the Central Bank’s median projection expects the federal funds rate to reach 5.6% by year-end, in line with the June forecast. This indicates a likely need for another quarter-point interest rate increase, possibly in November or December.
Looking to 2024, the dot plot, reflecting individual members’ opinions on the rate outlook, hints at the possibility of two quarter-point rate cuts. The median 2024 forecast projects a federal funds rate of 5.1%, signifying reduced expectations of rate cuts.
The decrease in projected rate cuts for 2024 signifies a significant shift. According to Senior Economist Andrew Patterson from Vanguard, this change, combined with improved growth and unemployment forecasts, suggests the Federal Reserve’s growing confidence in steering a “soft landing.”
READ MORE: Q4 2023 Forecast: UK Economy’s Rough Ride Ahead
The potential impact of an interest rate hike on Bitcoin is notable. Bitcoin, often dubbed “digital gold,” has been sought as a hedge against market fluctuations. It typically exhibits an inverse relationship with Central Bank interest rates. As the Fed hints at a rate hike, this dynamic might change, making traditional assets more appealing.
However, Bitcoin’s role as a hedge and safe haven asset during economic uncertainty is expected to persist, irrespective of interest rate fluctuations. This unique feature could fuel a new surge in Bitcoin’s price.