Fed Rate Hike to 4% and Its Impact on Bitcoin and Crypto

The US Federal Reserve has raised interest rates by25 basis points, taking its target range to3.75%–4.00%.

Crypto assets did not really react to the news. Bitcoin prices were slightly up and Ethereum slightly down, as the Fed’s revised forecast implied an extended period of high borrowing costs for risk assets well past this year, perhaps even into 2027.

Fed turns its attention back to inflation

This was thefirst rate hike since 2023, and the Federal Open Market Committee approved the increase unanimously.

Fed Chair Kevin Warsh commented on the strengthening of the economy, because of which officials had left rates untouched in July.He addedthat consumer spending and related business investment had been resilient and that the labour market continued to operate close to full employment.

The strength of the labour market has enabled the Fed to put the focus back on inflation, which is still above its2%target.

The plain fact is that inflation is too high and has been for too long.

While acknowledging the Fed couldn’t do anything about the energy or food prices, Warsh said they could try to stop it from spreading across the rest of the economy.

The Fed said it expected inflation to average3.7% in 2026, then2.3%the next year and would not return to2% until 2029.

Another rate hike could follow

According to theFed’s economic projections, the median policy rate will be4.1%by the end of 2026, meaning that there is another possible quarter-point increase.

They expect inflation to linger around4.1% in 2027, well above the3.6%forecast in June.

Warsh did not provide any forecast of his own and claimed he was ‘not in the forward guidance business’.

But what he did was hint that financial conditions were not restrictive prior to the last increase, which suggests that the Fed believes the economy could live with higher rates with no damage to employment.

What the Fed decision means for crypto

A strong sell-off for the entire crypto market following the announcement was avoided.

Bitcoin showed a decline of around0.2% over 24 hours, while Ethereum remained almost unchanged. Solana and BNB saw slight losses while XRP’s value dropped by over2%.

The total crypto market value, without stablecoins included, was still0.8%more than 24 hours earlier at around$2.29trn.

The markets priced in about a 90% chance of a raise before the meeting.

Higher rates will see more money go towards cash and government bonds, and investors will be willing to take risks on Bitcoin and altcoins. Also, because there are expectations of another hike, with no cuts next year, crypto’s recovery could be limited.

Final Summary

• The Fed unanimously raised its target rate to 3.75%–4.00%.
• Crypto held relatively steady, but prolonged high rates could weaken demand.

Source: www.kucoin.com