Bitcoin Tumbles to $26.9K on Hawkish Remarks by Federal Reserve's Powell

In a widely anticipated move, the U.S. Federal Reserve on Wednesday held monetary policy steady, leaving the range for its benchmark interest rate at 5.25% to 5.50%.

Fed officials also projected keeping interest rates higher for next year at around 5.1%, a significant jump in expectations compared to 4.3% in the June prediction. They also see stronger economic growth for this year, expecting a 2.1% real GDP increase versus a 1% forecast in June.

"In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed statement reads.

Bitcoin's (BTC) price remained flat around $27,200 in the minutes following the central bank’s announcement, but later tumbled some 1% to $26,900 as Fed Chair Jerome Powell said in a press conference that the central bank will do more rate hikes if the economy remains stronger than expected.

Powell also said that the majority of Fed members believe "one more rate hike is more likely than not appropriate" to reach the Fed's goal during the remaining two Federal Open Market Committee (FOMC) meetings. He also acknowledged that the recent trend in inflation is going in the right direction, saying that the last three months' reading were "very, very good."

The FOMC’s next policy meeting is set for the start of November. Following today’s events, market participants priced in about a 71.5% chance there would be no rate change at that November meeting and gave a 53.4% odds keeping the rates at the current level until the end of the year, according to the CME’s FedWatch tool.

"It is hard for us to take today’s announcement with too much optimism,” Michael Silberberg, head of investor relations at AltTab Capital, said in an emailed note. "It came as a surprise that the report emphasized slower rate cuts moving forward than previously projected."

"The big news is the 2024 rates projection, [which is] higher than I expected. This is a very big signal," crypto and macro analyst Noelle Acheson said in an email. "It's the message sent by effectively taking two rate cuts off the table, which also suggests that any rate cuts will come later than the market had been hoping."

She added that "higher rates, a stronger dollar and stock market drops are not good for BTC," but acknowledged that crypto markets took the news relatively well, which suggests there might be some "buying support" at current levels.

Market research firm Asgard Markets expected some profit-taking would ensue following the Fed's decision. "Positioning and sentiment aren't as light [and] offsides as they were earlier this year, and there aren't many new catalysts on the horizon, meaning 'in-the-money' participants will take some chips off the table and reassess,” it said Tuesday in a note.

"The Fed has embraced the idea of a soft landing: they see stronger growth and lower unemployment, and still expect to get back to their inflation target," Zach Pandl, economist at Grayscale Research, noted in a emailed note. Asset management firm Grayscale is owned by DCG, CoinDesk's parent company.

"The last soft landing was in the mid-1990s, and this proved to be a terrific outcome for technology-related assets. While we can't be sure there will be a soft landing, that scenario could be positive for bitcoin and ether (ETH)," he added.

UPDATE (Sept. 20, 2023, 20:00 UTC): Updates prices, and adds details from Federal Reserve press conference.

UPDATE (Sept. 20, 2023, 20:30 UTC): Updates to add additional comments from analysts.

UPDATE (Sept. 20, 2023, 20:47 UTC): Updates to add additional analyst comment.