Federal Reserve Returned To Zero Interest Rate Policy, Resulting Soared Bitcoin Price

Priyanka Kulkarni
Priyanka Kulkarni, post-graduated in Business Administration holds worthy experience in market research and investment banking. She is passionate to flaunt her perception towards cryptocurrencies.
  • It was decided at the Federal Open Market Committee’s (FOMC) meeting, which was scheduled on Tuesday but moved up on Sunday.
  • On Dec. 2008, the same decision was brought under action where it remained for seven years.
  • Apart from deduction of rates, the Federal Reserve decided to buy $500 billion in U.S. Treasury bonds and $200 billion mortgage-backed securities (MBS)

While the world is under the threat of coronavirus, it is harshly affecting the U.S. as well as the global economy. The U.S. Federation Reserve decided to return to the zero interest rate policy (ZIRP).  It was decided at the Federal Open Market Committee’s (FOMC) meeting, which was scheduled on Tuesday but moved up on Sunday.

What was the Fed’s latest move?

Per the Federal Reserve statement, the coronavirus plague has damaged communities and disturbed economic activity in many countries, including the U.S. The Fed decided to cut rates to essentially zero on Sunday and introduced a $700 billion quantitative enabling program.

On Dec. 2008, the same decision was brought under action where it remained for seven years. By 2018, it uplifted up to 2.5 percent before the Feb began cutting. Just two weeks ago, it came to 1.0 to 1.25 percent.

Dealing with highly muddled financial markets, the Fed reduced the emergency lending by 125 basis points to 0.25% for banks and expanded the term of loans to 90 days.

Though, with the sudden decision of the Federal Reserve, the market’s initial reaction was adverse. The stock market index Dow Futures notified a drop of some 1,000 points at the Wall Street open Monday morning.

One of the members of FOMC showed interest in this issue by voting for the rate cut. The Cleveland Fed President Loretta J. Mester agreed with the decision to reduce the rates but suggested increasing the rate a bit higher, between one-half and three-quarters percent.

Apart from the deduction of rates, the Federal Reserve decided to buy $500 billion in U.S. Treasury bonds and $200 billion mortgage-backed securities (MBS). By this step, there will be an increase in the liquidation in the U.S. economy.

This is the fourth major round of quantitative easing by the American central bank, also known as “QE4.” The global financial crunch is a little more than compared to a decade ago. It will bring the total Federal Reserve balance up to $5 trillion.

The Crypto twitter bustle

With this unexpected update by the Fed, the social media became active with several reactions on their pages.  One of the significant Bitcoin investor and CEO of Gemini, the next generation cryptocurrency exchange recently tweeted that for the present calamity, Bitcoin is not a hedge.

It is workable for the fiat system.  An undetermined negative demand in the global economy will affect every asset, including gold, for a short period.  Adding to this, he commented that Bitcoin is not making any deals right now. It has the patience to last in the endless game.

However, there was an uplift in the price of Bitcoin. After the announcement by Federal Reserve, the market capitalization of this prominent currency ascended 7.7 percent from $5,182.70 to $5,582.62 in less than an hour.

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