Earlier this week, the Federal Deposit Insurance Corporation (FDIC) announced that First Republic Bank had gone bankrupt and would be acquired by J.P. Morgan. The most recent Fed meeting took place as the banking crisis continued with the collapse of First Republic Bank. At Wednesday's meeting, the Fed raised its key interest rate by 25 basis points to a range of 5% to 5.25%, as expected, the highest level in 16 years. After the meeting, it is stated that the committee will closely monitor the effects of its monetary policy in the light of new information. However, the post-meeting statement no longer includes a sentence from the previous statement saying that “the Committee anticipates that some additional policy firming may be appropriate” for the Fed to reach its 2% target. It is believed that the Fed will pause the rate hikes as it observes the state of the financial markets and inflation. However, the banking crisis in the U.S. is not over yet. On Thursday, PacWest shares fell more than 50%.
Bitcoin performed well as the banking crisis escalated. Analysts believe that the collapse of regional banks has positively affected cryptocurrencies for two main reasons. Firstly, some analysts and investors see cryptocurrencies as a safe haven that delivers good results when the stakes are high. Secondly, banking failures could lead to a slowdown of the U.S. economy, thereby increasing the likelihood of a future Fed pivot.
