The U.S. Federal Reserve’s decision to pause interest rate hikes has fueled optimism in crypto markets, driving a bounce in Bitcoin and other major tokens.
Fed Keeps Interest Rates Unchanged
The US Federal Reserve Chair Jerome Powell announced the US central bank’s decision to pause interest rate cuts at its January meeting on Wednesday.
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The decision maintains the benchmark fed funds rate at 4.25%-4.50%, marking the first pause since the series of cuts over the last three meetings since September.
The US central bank’s latest statement highlighted that the unemployment rate remains “low” while inflation stays “somewhat elevated.”
The Fed’s decision to press the pause button leaves its monetary policy options open in the short term, with no immediate changes expected. The central bank will keep rates steady until it has a clearer picture of where inflation is headed next.
Banks May Serve Crypto Clients
Additionally, Federal Reserve Chair Jerome Powell clarified that banks can serve crypto clients if they can manage the associated risks.
Powell emphasized that the central bank is not opposed to innovation, recognizing the challenges faced by crypto firms, particularly following the FTX collapse.
Given their novelty, banks are urged to uphold higher risk management standards when dealing with cryptocurrencies. This stance offers reassurance amid ongoing concerns about crypto debanking and its potential impact on the industry.
Crypto Markets React Positively
The crypto market saw a significant bounce following the Fed’s announcement, with the total market cap rising by 2.89% to reach $3.57 trillion.
The crypto market recovered following the Fed announcement on Wednesday. Source: CoinMarketCap
Bitcoin, in particular, surged by 2.73%, reaching approximately $105,100, as investors digested the implications of the Fed’s decision on inflation and interest rates. The Bitcoin dominance index also increased to 58.5%, signaling a strong sentiment towards the leading cryptocurrency.
Other major cryptos followed suit, with Ethereum (ETH) climbing 2.6% to above $3,200, Solana (SOL) jumping 3.45% to $239, and Cardano (ADA) rising 3.2% to $0.96.
Why This Matters
The crypto market’s positive reaction highlights confidence in the Fed’s approach and its potential impact on the economy and inflation control in the coming months.
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