Federal Reserve Chair Jerome Powell threw cold water on hopes for a rapid end to the central bank’s tightening of monetary policy, though the cryptocurrency market proved more resilient than other risk assets.
At 3:53 PM EDT, bitcoin was changing hands at $20,287, down 0.7%, while ether was at $1,539, 2.4% lower, according to Nomics. The global cryptocurrency market valuation dropped 1.17% while the S&P 500 and Nasdaq shed 2.5% and 3.2% respectively.
Addressing Fed’s decision, Powell said “incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”
Crypto has shown relative strength over equities since the previous Federal Open Market Committee (FOMC) press conference on Sept. 21, with crypto outperforming broad financial markets, according to crypto analytics firm Arcane Research. “Bitcoin and ether saw massive short-lived selling pressure immediately after the FOMC but recovered comfortably, trading in the green,” Arcane analysts wrote in a Nov.1 research note.
They also noted that the FOMC meetings tend to lead to elevated correlations across asset classes, so traders should prepare for more volatility in the coming days.
“FOMC days have tended to become more volatile recently. The September 21 FOMC was the most volatile to date, as BTC BTC saw average minutely price fluctuations of 0.81%,” Arcane says.
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Rising interest rates pressure economic growth and the stock market in a number of ways, and cryptocurrencies have generally mirrored equities directionally in recent months, though with more volatility. That has brought bitcoin down 58% so far this year, compared with a decline of just 22% for the S&P 500, leaving stocks more vulnerable to Wednesday’s surprise announcement by Powell, which followed a more benign-sounding statement from the entire FOMC, the central bank’s policy-setting arm.
Stocks and crypto initially rallied after the FOMC said it would “adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals” and before Powell took a less accommodative tone. The chairman’s remarks apparently quashed hopes that Fed would end its string of interest-rate increases. The central bank’s goals are to achieve maximum employment with an annual inflation rate of 2%, about six percentage points below the current level.