Fed Officials Expect Another Interest Rate Hike: How Will It Affect Bitcoin?

• The latest Economic Projection Summary released by the U.S. Federal Reserve (Fed) earlier this week provides valuable insights into the central bank’s interest rates and the overall economic outlook.
• Looking ahead to 2024, the ‘dot plot,’ representing the views of individual members on the outlook for interest rates, indicates that two quarter-point rate cuts are looming.
• In recent years, an interesting dynamic has emerged, with Bitcoin’s value tending to exhibit an inverse relationship with interest rates set by central banks.

According to the projections, Federal Reserve officials are anticipating another interest rate hike by the end of this year: Will this trigger a bullish rally in Bitcoin?

Fed Officials Anticipate an Interest Rate Hike This Year

The latest Economic Projection Summary from the U.S. Federal Reserve, released earlier this week, provides valuable information about the central bank’s interest rates and the general economic outlook. According to these projections, Federal Reserve officials appear inclined to implement another interest rate hike by the end of this year.

A recent report suggests that the median projection of the central bank’s policymakers reflects that the federal funds rate will likely reach 5.6% by the end of this year, possibly reflecting the June estimate. This indicates that a majority of the Federal Reserve policy committee believes that an additional quarter-point rate hike may be necessary, which could potentially be planned for the November or December meetings.

Looking at 2024, the ‘dot plot,’ representing the views of individual members on the outlook for interest rates, indicates that two quarter-point rate cuts are looming. The median projection for 2024 shows a federal funds rate of 5.1%, which marks a significant increase from the 4.6% estimate in June, suggesting a diminished expectation of rate cuts.

The decrease in projected rate cuts for 2024 is a significant change in this update. According to Andrew Patterson, Senior Economist at Vanguard, this change reflects increased confidence in the Federal Reserve’s ability to guide a ‘soft landing,’ thanks to more optimistic growth expectations and improved unemployment predictions.

This suggests that the central bank believes it can withstand higher interest rates for a longer period without causing a significant disruption to the economy.

Potential Impact of Interest Rate Hike on Bitcoin

Bitcoin (BTC), often referred to as ‘digital gold,’ has attracted significant attention as a hedge against traditional financial market fluctuations.

In recent years, an interesting dynamic has emerged, with Bitcoin’s value tending to exhibit an inverse relationship with interest rates set by central banks. When interest rates are low, investors often turn to alternative assets, especially Bitcoin, in search of higher returns.

However, the dynamics of this relationship may change when the Federal Reserve signals a potential interest rate hike. Rising interest rates may make traditional interest-bearing assets more attractive to investors.

Nevertheless, Bitcoin’s status as collateral and a safe-haven asset could potentially mitigate the effects of an interest rate hike. During periods of economic uncertainty, Bitcoin has often been perceived as a digital refuge for investors looking to protect their wealth from inflation or financial instability.

This characteristic, independent of fluctuations in interest rates, could be a fundamental factor that triggers a new bull run in the price of Bitcoin.