The Federal Reserve has announced a reduction in the interest rate in an attempt to stimulate the global stock market affected by Coronavirus. The interest rate was reduced by 0.5%, to the most important extent implemented since December 2008.
According to authorities, this action is intended to combat the economic effects of Coronavirus. The global epidemic has caused the US stock market to decline by over 9%, the largest historical decline, according to the Fed statement.
“Coronavirus presents evolving risks for economic activity. Given these risks and in support of meeting its maximum objectives of employment and price stability, the EDF today decided to reduce the target range for the federal funds rate by 1/2 percentage point. ”
Lowering interest rates has the effect of injecting money into the economy, causing investors to buy more assets. Usually, safety assets, such as gold and other precious metals, are also a popular choice.
Gold, the preferred security asset, increased to nine-year highs in 2019, gaining over 5% in that period. In the last year, Bitcoin has also gained over 30% in value.
Despite analysts’ expectations, the price of Bitcoin did not respond positively to the EDF announcement. During yesterday, the cryptocurrency fluctuated from $ 8,900 to $ 8,700. This evolution contradicts the hypothesis that Bitcoin is treated as a security asset by investors in the traditional financial market.
However, the situation may change in the medium term, given the evolutions of the financial system.
Global authorities, including the EDF, the Bank of Japan, the International Monetary Fund and the World Bank, have said they will act as needed to help offset sustainable economic damage caused by quarantine, travel restrictions and production capacity disruptions.
These warnings can translate into a wave of investors opting for the crypto market as a method of protection against global economic measures.
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