Some News in the Financial Market: 18/03/2024 – 24/03/2024
Some News in the Financial Market: 18/03/2024 – 24/03/2024
Writer: Klinsmann Lee
US Fed keeps benchmark interest rate unchanged for April [1]
Background:
The US Federal Reserve kept its benchmark interest rate unchanged at 5.25%-5.5%.
The Federal Reserve projects a 0.75% interest rate cut by the end of 2024.
The current interest rate is the highest in 23 years.
The expectation is that the interest rate is at its peak for its current business cycle. However, the Federal Reserve Chairman, Jerome Powell, did note that “We are prepared to maintain the current target range for the federal funds rate for longer if appropriate”.
GDP growth projection has also been increased from 1.4% to 2.1%, reflecting the resilience of the US economy.
The Fed maintained its direction for the balance sheet reduction program, “Quantitative tightening”
$60 billion a month of maturing in Treasury bonds.
$35 billion in mortgage-backed securities to not be reinvested every month.
Klinsmann’s Analysis:
No surprise news is good news – The Federal Reserve has kept its interest rate forecast the same as last month.
It is also reasonable for the Federal Reserve to keep an open mind to keep the interest rate at the current level if needed – the economy and job market have shown strong resilience.
The Federal Reserve benchmark interest rate is very important because it sets the benchmark for which banks charge for overnight lending. This benchmark also feeds through other types of borrowing like consumer debt.
By maintaining the current interest rate, this will continue to create financial pressure for borrowers, for example if you have a mortgage, with a loan on a variable interest rate.
The question to consider is how much the economy can continue to keep its momentum given the current level of interest rate.
Bitcoin price has partially recovered after a recent drop from a historical high [2]
Background:
Bitcoin price has risen more than 70% since the start of the year breaking a historical high at $73k last year.
However, Bitcoin price did drop to $65k by Wednesday (20/03/2024).
The pullback in price is possibly explained by traders taking profits after the price had risen since the start of the year.
The rise in Bitcoin price is driven by two factors:
Increase Demand: The approval of listing and trading of spot Bitcoin exchange-traded products. This leads to greater interest and capital in cryptocurrency purchase by market participants and financial institutions.
Decrease Supply: Bitcoin Halving – The reward for mining Bitcoin transactions is cut in half. This occurs every 4 years and the intention is to control the supply of Bitcoin available.
The block reward will fall to 3.125 BTC.
As of March 2024, about 19.65 million bitcoins were in circulation. There are still 1.35 million to be released via mining rewards. [3]
Klinsmann’s Analysis:
Bitcoin mining is important because it confirms the legitimacy of the transactions in a block within the Bitcoin blockchain network.
Miners receive rewards, Bitcoin, for validating transaction information.
Miners compete with each other to validate the transactions using a system called “Proof of Work”
Summary (less technical): Transacting with Bitcoin is the core intention. The miner who successfully verifies that those transactions are real will receive Bitcoin as a reward.
The increase in demand and supply is what drives Bitcoin price since the start of the year.
Blockchain technology is important as it helps eliminate the need for a “middle person”. This is also one of the intentions when Bitcoin was created.
Whether to invest in Bitcoin or other cryptocurrencies should be dependent on the risk appetite of the holders.
I do not own Bitcoin or any cryptocurrency.
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