Bitcoin Briefly Spikes on Fed Announcement—Before Traders Realize Nothing Changed

The Federal Reserve says it still plans to raise interest rates starting in March, when it will also wind down its pandemic stimulus program.

By Jeff Benson

The Federal Reserve announced today that interest rates will remain at 0%, with the first rate hike this year planned for March.

The press release coincided with a spike in the price of Bitcoin from under $37,800 to $39,200 in the span of 20 minutes. But as quickly as the price of BTC rose, it fell back to its previous price.

After all, the Fed's announcement, as was expected, pretty much says that nothing is changing yet.

In mid-December, crypto and stock prices rose when the Fed said it would start raising rates and winding down pandemic-era bond purchases in 2022; Bitcoin went from $47,000 to almost $49,500 in a few hours.

But in the first week of January, when freshly released minutes from that meeting put the target date at mid-March, equities markets closed lower and Bitcoin slid 6%.

Today's meeting of the Federal Open Market Committee mostly repeated what's been suggested by analysts for the last couple of months: In order to bring inflation—which hit 7% in December—back down to a target rate of 2% while maintaining high levels of employment, the Fed will raise its interest rates by as much as 0.25% per quarter.

The federal funds rate is the rate at which banks can borrow money from each other's reserves overnight. Raising interest rates has a knock-on effect throughout the economy, contributing to increasing credit card interest rates and mortgage costs for consumers, who will probably have a bit less to invest on stocks or crypto in 2022.

The committee also declared that it would end its asset purchases—which had the effect of increasing the monetary supply in the U.S.—in March.

Unlike crypto markets, equities markets swung back into negative territory after the news—but given the up-and-down week on Wall Street, it's unclear whether they'll stay there.