The FED (Federal Reserve System) is a familiar name to investors, especially those interested in the cryptocurrency market. Have you ever wondered why the decisions of a central bank can have a strong impact on the price of Bitcoin?
Let's take a deeper look at the connection between the FED and the cryptocurrency market with AZcoin.
What is FED?
The FED is the Federal Reserve System of the United States, established on December 23, 1913. Signed into law by President Woodrow Wilson through the Federal Reserve Act, the FED is responsible for maintaining a flexible and stable monetary policy for the US economy.
The FED operates independently, is not controlled by the government and is the only agency with the power to print USD. This makes the FED play an important role in adjusting monetary policy and directly affecting the global economy, including the cryptocurrency market.
Structure of the US federal reserve system
The Fed consists of three main bodies:
Board of Governors: Consisting of 7 members, appointed by the President and confirmed by the Senate. This board is responsible for making important decisions on monetary policy.
Federal open market committee (FOMC): Consisting of 7 members of the Board of Governors and 5 branch bank presidents. The FOMC conducts federal open market operations.
12 regional Federal Reserve Banks: Located in major cities such as New York, Chicago and San Francisco, perform banking duties and provide support to member banks.
FED mission and role
The FED was established to coordinate financial markets and respond to financial crises. According to the Federal Reserve Act, the FED duties include:
Implementing national monetary policy: Creating employment, stabilizing prices, and adjusting interest rates. This role is similar to that of the European Central Bank in the Eurozone.
Maintaining economic stability: Supervising the financial system and stabilizing product prices.
Supervising banking institutions: Ensuring the safety of the financial system and credit rights.
Providing financial services: For governments and international organizations.
Current FED interest rates
The Fed Funds Rate is the overnight interest rate at which banks borrow from each other to meet their minimum reserves. This is the Fed's main tool for adjusting the money supply and interest rates. Currently, the Fed has kept interest rates at 5 - 5.25% to control inflation. However, this decision can have a big impact on the global economy and experts, based on the latest interest rate forecast, predict that rates may continue to rise soon.
Impact of FED on the crypto market
Below are some of the ways the Fed affects the crypto market:
Interest rates: When the Fed raises interest rates, the cost of borrowing increases, reducing the amount of money circulating in the economy. This often leads to a decrease in the value of risky assets, including cryptocurrencies. Conversely, when interest rates fall, the cost of borrowing is lower, which can spur investment in risky assets like cryptocurrencies.
Monetary policy: The Fed implements monetary policies such as buying, selling government bonds to adjust the money supply. These changes can affect market sentiment and the value of cryptocurrencies.
Market sentiment: The Fed decisions are often closely watched by investors. Uncertainty about the Fed decisions can create large fluctuations in the crypto market.
Inflation: When the Fed raises interest rates to control inflation, this can reduce the purchasing power of consumers and investors, negatively affecting the value of cryptocurrencies. Rising bond yields can also influence investor behavior and market dynamics.
Impact on the global economy
Changes in FED interest rates affect not only the US economy but also the global economy. When the FED raises interest rates, the USD strengthens against other currencies, which can put inflationary pressure on countries with trade deficits and reduce the competitiveness of exported goods.
Global economic growth: High interest rates can slow down the global economic recovery, leading to reduced demand for goods and services.
Impact on financial markets: Investors may shift investments from emerging markets to markets with higher interest rates and lower risks.
Impact on Vietnam economy: The FED interest rate hike also affects Vietnam, increasing borrowing costs and putting pressure on the USD/VND exchange rate. A strong USD could make Vietnam’s exports less competitive and affect the domestic economy.
Summary
Above is information about the FED and the impact of its interest rate decisions on the cryptocurrency market. Hopefully, this article will help you better understand the relationship between the FED monetary policies and the volatility of the crypto market.
For more detailed information and analysis on factors affecting the cryptocurrency market, continue to follow AZcoin.