The Fed’s March Meeting and What It Means for Crypto

Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.

During a press conference yesterday, Federal Reserve Chairman Jerome Powell addressed the recent meeting of the Federal Open Market Committee (FOMC) and announced an 8 to 1 decision of a 0.25% interest rate hike effective today with a projected federal funds rate of 1.9% by the end of the year and 2.8% by 2024.  As such, the public can expect six further hikes for 2022 before this targeted rate is achieved. 

Powell continuously stressed throughout the press conference that the primary goals of the Fed are focused on “maximum employment and price stability.” The projections for real GDP growth of 2022 are estimated to be around 2.8% which indicates why the FOMC believes the economy is strong enough to support the ambitious interest rate hike schedule. Admittedly, the plan to bring inflation back down to the target 2% will take longer to achieve than previously projected from the December meeting. According to the most recent FOMC meeting report, we may not see inflation at 2% until well after 2024.

While inflation continues to be a concern, the FOMC has yet to finalize plans on how to minimize the nearly $9 trillion balance sheet.  The FOMC meeting in May will solidify this roadmap, however, Powell hinted that the Fed would reduce bond holdings similarly to when they did in 2017-2019 only faster and sooner. 

The crypto market weathered this recent announcement much better than from the previous FOMC meeting in January.  A few key factors are responsible for insulating the crypto market. First, geopolitics has changed the global attitude on cryptocurrency, especially in light of the war between Russia and Ukraine. The use case of crypto when financial institutions are down or under attack has made the role of crypto in Ukraine and Russia indispensable. 

Second, the recent release of the Executive Order indicated that the Biden Administration was willing to embrace the continued operation of cryptocurrencies under guided government regulation. This signaled to investors that crypto would become a safer ecosystem and therefore less of a volatile option for investment. As the Fed begins to hike interest rates, cryptocurrency has become more appealing for the average investor and a more legitimate option for portfolio diversification.