The Federal Reserve Raises Interest Rates For The First Time Since 2018
Following today's Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell announced that the Fed will raise the federal fund rates 25 basis points from 0 to 0.25%. This ends the 3 year Covid zero interest rate policy (ZIRP) in response to rocketing inflation (7.9% CPI). They also anticipate a rate raise at each of the next 6 FOMC meetings with a target of 1.9%. This rate is the target interest rate at which commercial banking institutions borrow/lend reserves to each other overnight. Commercial banks borrow/lend excess reserves because, by law, these banks must maintain a reserve balance in a Federal Reserve bank account to cover their depositor's withdrawals as well as any other obligations. If they have excess reserves, they can lend these to banks which may be short in their Fed account.
Effective Federal Funds Rate from 1955-2021
What does this mean for the average American. Expect interest rates to go up on everything from home mortgages, home equity loans, to auto loans. Coupled with higher inflation, expenses will continue to rise.
In addition, the Fed expects to begin reducing its $9 Trillion balance sheet, made up of US Treasuries, and mortgage backed securities.
What does this mean for Bitcoin -- it's hard to say and most would be speculating. If interest rates continue to rise into a slowing economy, monetary policy will tighten drying up liquidity in markets. With less liquidity, you may see lower volumes in crypto markets which could drive prices lower, or keep them stagnant. On the other hand with the expectation of the El Salvador Volcano Bond and rumblings of a second Nation adopting Bitcoin as legal tender in the next year, it's truly anyone's guess how this plays out.
6 Congressmen Submit Letter to SEC Chair Gensler Regarding SEC Policy Surrounding Cyrptocurrency
Led by Tom Emmer, Congressman (R) from Minnesota, a bipartisan group of congressmen, submitted a request to SEC Chair Gary Gensler regarding his utilization of the Division of Enforcement and Division of Examination authorities to "obtain information related to cryptocurrency and blockchain firms". They state "It appears there has been a recent trend towards employing the Enforcement Division's investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission's standards for initiation investigations." The congressmen are requesting answers to multiple questions regarding the SEC's information gathering practices to determine whether they are operating within their purview. Per Congressman Emmer “My office has received numerous tips from crypto and blockchain firms that SEC Chair Gensler’s information reporting “requests” to the crypto community are overburdensome, don’t feel particularly… voluntary… and are stifling innovation.” The Congressmen requested a response to their questions by April 29th.