Fed rate hike

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1. Time for convening the interest meeting.

The Federal Reserve's meeting on interest rates (FOMC meeting) is held eight times a year in Washington, with an interval of about six weeks.

Schedule of Federal Reserve's Meeting on Interest Rate and Minutes in 2022 (EST)

January 25 -26: Federal Reserve's interest rate resolution and press conference;

March 15 -16: Federal Reserve interest rate resolution, press conference, bitmap, economic forecast;

May 3 -4: Federal Reserve's interest rate resolution and press conference;

June 14 -15: Federal Reserve interest rate resolution, press conference, bitmap, economic forecast;

July 26 -27: Federal Reserve's interest rate resolution and press conference;

September 20 -21: Federal Reserve interest rate resolution, press conference, bitmap, economic forecast;

November 1 -2: Federal Reserve's interest rate resolution and press conference;

December 13th-14th: Federal Reserve interest rate decision, press conference, bitmap, economic forecast.

2. Organizational structure of the Federal Reserve

The Federal Reserve consists of three parts: the Federal Reserve Board (FRB), the Open Market Committee (FOMC) and 12 regional federal reserve banks in major cities across the country. There are about 2,000 member banks under these 12 reserve banks.

The Federal Reserve Board has seven executive members, including the chairman, vice-chairman and five other members. All seven executive members must be nominated by the President and confirmed by the National Assembly before they can take office. The term of office of the executive members is 14 years, and the term of office of the chairman and vice-chairman is 4 years. The Open Market Committee has 12 members, consisting of 7 executive members of the Reserve Committee and 5 chairmen of 12 regional federal reserve banks, of which the chairman of the new york Federal Reserve Bank has the right to vote, and the other 11 banks elect 4 members to get the right to vote in turn.

Federal Reserve Board: the authority, which has the leading power in the process of monetary policy decision-making and implementation, determines the bank deposit reserve ratio and reserve interest rate, and examines the discount rate;

Open Market Committee: the executive body meets once every six weeks (interest rate meeting) to decide the adjustment direction of open market operation policy, that is, monetary policy, which is usually called benchmark interest rate. There are three adjustment directions: raising interest rates, lowering interest rates and keeping the current interest rate unchanged;

12 local reserve banks: As important participants, they participate in the implementation of Fed policies and feedback on economic market conditions.

3. Interest rate hike cycle

According to the previous QE exit path of the Federal Reserve, the process of raising interest rates can be roughly divided into four stages: the first stage, releasing a clear signal to reduce the purchase scale; In the second stage, gradually reduce the scale of debt purchase; The third stage, ending QE; The fourth stage is to raise interest rates.

Because of the changes in the environment, it is different from the last round of QE that started to raise interest rates more than one year later. At present, the market generally expects that the interval between the Fed's current interest rate hike and its exit from QE will be greatly shortened. At the same time, the Fed may reiterate that it will start to shrink the table after the first rate hike, and the pace is much faster than the previous cycle. In the minutes of the meeting in December 2021, the Federal Reserve clearly stated that "almost all members agreed to start shrinking the table after the first rate hike" and "the appropriate speed of shrinking the table may be faster than that during the last normalization period".

When the Fed starts the cycle of raising interest rates, it will mainly do three things: accelerate the reduction of the scale of bond purchases, raise interest rates, and reduce the balance sheet. These three things are progressive step by step, and with each step, the lethality may increase exponentially.

4. The relationship between interest rate increase and the rise and fall of encryption market.

The most fundamental impact of the US interest rate hike on the encryption market is that it may create a short-term or long-term liquidity crisis. The fundamental reason for the length of this crisis is: what pace will the Fed use to raise interest rates?

Judging from the latest round of interest rate hikes, that is, from December 2015 to December 2018, the Federal Reserve raised interest rates nine times in a row in three years. During this period, Bitcoin just experienced a second halving, and it really began to "mainstream". During the first five interest rate hikes (December 2015-December 2017), Bitcoin continued to rise as a whole, rising by about 100 times against the interest rate hike. The subsequent four interest rate hikes were relatively more violent. Bitcoin also fell all the way after reaching the high point of the second round of halving at the end of 2017, with the highest drop of more than 85%.

To sum up, with the "mainstreaming" and "Americanization" of Bitcoin, the change of the Federal Reserve's monetary policy has an increasing impact on the rise and fall of Bitcoin, and even determines the bull-bear form of Bitcoin to a great extent. To put it simply, the Fed's interest rate hike is more negative in the short term; From the long-term impact, raising interest rates is a complicated economic issue, so what is the reason for raising interest rates at that time? What was the development stage and quality of the economic environment and the encryption market itself at that time?