What is the Fed? How Fed Decisions Affect Crypto Markets?
A-Z about FED
📍 For many brothers who have participated in the crypto market, it is very important to follow the decisions of the Fed.➡️However, there are also brothers who do not understand this organization well.📍 What is the Fed?➡️The Fed (Federal Reserve System or Federal Reserve) is the central bank of the United States and arguably the most powerful financial institution in the world.➡️ The organization was established to provide the country with a secure, flexible and stable monetary and financial system.➡️ The Fed is privileged to control the production and distribution of money and credit to the nation.➡️ Along with that, the Fed is also responsible for setting monetary policy and regulating member banks.➡️ The current Chairman of the Fed is Mr. Jerome Powell.📍The Fed's Mission➡️The main objective of the Fed's policies is to create an economy with stable prices (inflation rate is within the allowable range) and maximum employment.The Fed's mandates can be further categorized into four general areas:Implement national monetary policy by influencing monetary and credit indexes in the US economy to ensure maximum employment, stable prices, and moderate long-term interest rates.Supervising and regulating banking institutions to ensure the safety of the US banking and financial system and protect the credit rights of consumers.Maintain the stability of the financial system and have systemic risk.Provide financial services, including playing a pivotal role in running the national payment system, depository institutions, the US government, and foreign official institutions. 📍Why the Fed's decision has an impact on the global economy➡️ Every action of the Fed is noticed everywhere in the world.➡️ The reason for this is that the US dollar is the key currency in international trade.➡️ Besides, USD also occupies an important position in the international monetary system.➡️ Therefore, important commodities such as gold and oil are priced in USD.➡️ Meanwhile, the Fed is the only organization that can decide the increase or decrease of interest rates of the USD. From there, the Fed can establish the value of the USD through trading in USD and other foreign currencies.➡️ This directly affects the strength of the US dollar, affecting the global economy.➡️ Among the actions of the Fed, the most notable is the decision on interest rates. So what is it?📍 Learn about the Fed's federal interest rateWhat is the Fed rate?➡️ The Federal Funds Rate (FFR) is determined by the Federal Open Market Committee (FOMC), an agency directly under the Fed.➡️ This is the interest rate that banks lend to each other for a day or overnight.➡️ According to regulations, each commercial bank is required to maintain the required reserve ratio at the account of the Central Bank.➡️ Banks with a reserve ratio below the required reserve requirement of the Fed must borrow more money to replenish.➡️ Meanwhile, when the rate exceeds the required level, banks can lend to other banks.➡️ Besides, the Fed interest rate is also a tool used to control the growth of the US economy.➡️ At the same time, it also impacts a lot on other financial costs, including:Basic interest rate.Deposit interest rates.Loan interest rate.Credit card interest rates.Adjustable mortgage interest rates.Therefore, any change in the Fed interest rate can cause significant fluctuations in the financial markets, especially the USD.➡️ Therefore, the main goal when the Fed uses this tool is to control inflation, reduce unemployment and ensure stable economic growth.➡️ The FOMC Council usually meets and decides on the Fed's interest rate eight times a year.📍How the Fed's interest rate decision affects the markets➡️ So how does the Fed's interest rate decision affect traditional markets such as stocks, bonds... and crypto.📍 Stock and bond market➡️ In general, the Fed's interest rate hike combined with liquidity squeeze also means higher borrowing costs.➡️ If at that time the economy has not really prospered, this will be a negative thing for businesses.➡️ Then they will have to borrow at a higher cost, thereby reducing profits. This will leave some companies in financial trouble.➡️ At that time, the stock market and the possibility of bonds will then be negatively affected.➡️ However, if the Fed lowers interest rates, the money supply to the market will increase. This means that borrowing costs will decrease.➡️ This will contribute to the development of the economy. Especially for businesses, they will have the opportunity to borrow capital at a low cost. From there they have the ability to grow faster with larger profits.➡️ Along with that, although there is no direct impact, the cost of consumer loans will also decrease. This contributes to stimulating consumer demand in the society.➡️ In addition, pumping money into the economy will make more people have more cash. From there, the amount of idle cash will be born and the assets many investors choose to pour money into will be stocks and bonds.All of the above will be a positive for these markets.📍Crypto Market➡️ Recently, the correlation between crypto and the US stock market has been increasing.➡️ This means that the reaction of crypto to the Fed's decision will be roughly similar to that of the stock market.➡️ Specifically, when the Fed cuts interest rates, thereby pumping money into the economy, crypto will likely be an attractive asset to attract investors' money.➡️ The opposite can also happen with this market.➡️ However, there are analysts who believe that the impact of raising interest rates on BTC is only short-term, even beneficial for BTC.➡️ The reason for this could be that BTC has a finite supply as well as the wider acceptance of the asset.📍 Effect of Fed's interest rate decision on BTC price in the past➡️ Take a look at how the Fed's interest rate decisions from the beginning of the year have affected the price of BTC since the beginning of the year.➡️ Specifically, on January 26, the Fed decided to keep the interest rate unchanged at 0.15%. This news initially caused BTC to rise slightly in the first 30p.➡️ However, after that, the price of BTC dropped sharply from above $ 38,000 to $ 35,850.➡️ Over the next few days, the price of BTC rallied back to $41,500.➡️ Next, on March 16, the Fed raised interest rates from 0.15% to 0.4%. Since the market seemed to have anticipated this, the BTC price fell in the first few minutes but rose in the days that followed.➡️ And the last time on May 4,the Fed raised interest rates to 0.9% , the increase can be said to be stronger than many people expected.➡️ That could be part of the reason why the price of BTC rose in the early days but plummeted in the days that followed.➡️ From the above data, you can see the opposite reaction of BTC price to the decision on interest rates of the Fed.➡️ This shows that to predict the BTC price trend, in addition to the Fed interest rate, investors must consider other factors.📍Epilogue➡️ I hope that after this article, you will have more knowledge to equip your crypto investment journey.➡️ Let's learn and evaluate the project to make the most informed investment decisions. Wish you luck!!!$BTC $ETH $BNB #BTC #etf #Marketupdate #fomc #Fed
