Bitcoin bounces back to $68,000 after the Fed decides to maintain interest rates as expected

The US Federal Reserve announced on March 20 that it would keep interest rates stable at 5.25% to 5.5% – in line with market expectations and to allay concerns about more aggressive monetary policy tightening.

In addition, the Federal Open Market Committee (FOMC) maintained its forecast for a rate cut within this year, indicating a cautious but optimistic outlook for the economy.

Fed Chairman Jerome Powell’s expected speech sent the crypto market back to near-yearly highs after days of heavy bleeding ahead of the FOMC meeting. The

Bitcoin (BTC) was trading at $68,032 at the time of writing – up 6.52% – after falling to a low of $60,800 earlier in the day, according to data from CryptoSlate.

The broader market similarly recovered from local lows, with most tokens posting gains between 5% and 15%. Meanwhile, some tokens – including memecoin Pepe (PEPE) and Bitcoin Layer-2 Stacks (STX) – posted gains of more than 20% as the day’s biggest winners.

The bullish momentum could take the market back to last week’s highs much faster than expected, despite the prevailing bearish sentiment of the previous days.

Interest rate cuts in June

The Fed’s decision comes in the wake of unexpectedly high consumer price index (CPI) and producer price index (PPI) reports, which raised concerns that inflation could be gaining momentum.

Such a scenario would have forced the central bank to maintain tight financial conditions, which could delay interest rate cuts and negatively impact asset prices.

At the March FOMC meeting, policymakers forecast a cut in interest rates to 4.6% by the end of 2024, following the same average level forecast in the December outlook. The confirmation has allayed fears among investors worried about a potential aggressive turn in the Fed’s strategy amid fluctuating economic indicators.

Prior to the FOMC’s latest announcement, market participants largely expected the first rate cut to occur in June, with about a 60% chance. However, the odds have increased following the announcement, with the market now estimating a 70% probability of at least one rate cut in June, based on the CME FedWatch Tool data.

Revised predictions

Along with this interest rate decision, Fed policymakers also revised their economic forecasts, notably raising the US growth outlook for this year to 2.1 percent, up from a previous forecast of 1.4 percent in December. This upgrade underlines a more optimistic view of the economy’s resilience and expansion potential.

However, the inflation outlook remains a complex challenge, with the headline inflation forecast remaining stable, while the projection for annual “core” inflation, which excludes volatile items such as energy and food prices, has been slightly increased to 2.6 percent.

This decision comes after the Fed’s aggressive policy actions since March 2022, raising a total of 5.25 percentage points in policy rates in response to rising price pressures. Since July 2023, the central bank has suspended these increases, taking a vigilant stance as it navigates the economic uncertainties.

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