Bitcoin Falls as Federal Reserve Slows Rate Hikes but Stays Hawkish

The U.S. Federal Reserve on Wednesday raised interest rates by 50 basis points (0.5 percentage point) as it continues to slow the economy and moderate price increases.

The decision brings the federal funds target range to 4.25%-4.5%, the highest level in 15 years. Fed Chair Jerome Powell has signaled that the terminal rate – the peak rate for the current hiking cycle, expected sometime next year – will likely be over 5%.

Bitcoin (BTC) has dropped by 2.5% since the 2 p.m. ET (19:00 UTC) decision, to around $17,740.

Wednesday’s rate hike by the Federal Open Market Committee (FOMC), the Fed’s monetary policy panel, signals a slowdown in the pace of hikes by the Fed, which for the past four consecutive meetings has raised rates in 75 basis point increments.

“50 basis points is still a historically large increase and we still have some ways to go,” Powell said at a press conference following the FOMC statement.

Inflation as measured by the consumer price index (CPI) continues to slow on a yearly basis: November’s CPI report showed that inflation rose 7.1%, down from 7.7% in October, the Labor Department reported Tuesday.

Officials with the U.S. central bank had said over the past month that it might be appropriate to slow the pace of interest rate hikes while the economy adjusts to the higher level of borrowing costs. However, "ongoing increases in the target range will be appropriate," according to the FOMC statement.

The FOMC also released a new set of economic projections (SEP) and “dot plot,” representing top Fed officials' projections for the next year. Ten out of 19 central bankers who are part of the committee expect the terminal rate to be higher than 5% but lower than 5.25% by the end of 2023, the dot plot shows.

For 2024, the majority of dots were put in the range of 4% to 4.25%, suggesting that rates will continue to stay elevated for a while.

“The most important decision is no longer the speed,” Powell said, but rather for how long the Fed needs to stay restrictive until inflation comes down significantly, which he said will “be some time.”

“It’s our judgment today that we’re not at a sufficiently restrictive policy stance yet,” he said.

UPDATE (Dec. 14, 19:18 UTC): Added information about economic projections.

UPDATE (Dec. 14, 19:47): Added comments from Federal Reserve Chair Jerome Powell.