Will the US Federal Reserve’s decision to raise rates have a significant effect on the crypto-currency market?

After raising interest rates by 425 bps last year, with four consecutive 75 bps hikes and a 50 bps hike in December, the market is expecting another slowdown in rate hikes to 25 bps on Wednesday.

Experts’ perception of Fed rate hike

Roger Fergusonformer Fed vice chairman, expects a 25 basis point rate hike at this month’s FOMC meeting. He believes Fed Chairman Jerome Powell will consider a cooling of inflation, but still far from the 2% target, suggesting two moves this year. However, the Fed will not pivot now due to current conditions.

Form #Fed Vice Chairman Roger Ferguson is expecting a 25 basis point rate hike at this month’s #FOMC meeting.

At the press conference, he notes that the Federal Reserve will likely say that “inflation seems to be slowing but [is] still far away from their 2% target.” pic.twitter.com/Qvog7e1o0N

Worldwide Exchange (@CNBCWEX) January 31, 2023

Fed officials predicted in December that they would pause when rates rise above 5%, but Wall Street traders anticipate a halt slightly below that level.

Christopher J. Waller, a member of the Federal Reserve Board of Governors, says the Fed needs six months of data, not three months of positive data, to consider a pivot. Thus, the Fed will effectively pause rate hikes before its May 2-3 meeting.

Brett Ryan, senior U.S. economist at Deutsche Bank, thinks the Fed will likely proceed with a 25 basis point rate hike. However, this is not the slowdown, but the pivot when the Fed is confident in the economy.

Mohamed A. El-Erian, an Egyptian-American economist and president of Queens’ College in Cambridge, said that it would be “shocked“if the Fed did anything other than a 25 basis point rate hike this week. However, a 50 basis point hike should be considered because of risk management on the monetary policy side and the possibility that inflation will become difficult to control.

Impact on the crypto-currency market

The crypto market had a wonderful rally in January on expectations of a Fed pivot due to cooling inflation and positive employment data. The price of bitcoin recorded a 40% rally during the month, reaching a high of $23.8k.

If the Fed opts for a 25 basis point rate hike and Powell hints at a dovish approach and an economic recovery, the bitcoin price is likely to surpass $25,000. On the other hand, a 50 basis point hike could send the cryptocurrency’s price plummeting.