The Fed stops raising interest rates, would a recession continue to last and people switch to cryptocurrency continue to increase?
On September 20, 2023, the US Federal Reserve (Fed) decided to keep policy interest rates unchanged at the current level but support an interest rate increase at the end of 2023 and continue to maintain monetary policy currency tightening until 2024.
How does this affect the US economy and countries around the world and why has the adoption of cryptocurrencies increased significantly recently? Let's find out with FinFan in the following article.
The Fed's decision on September 20 was to temporarily suspend interest rate increases.
According to AFP, after 11 interest rate increases since March last year, inflation in the United States has dropped sharply but has not yet dropped to 2% as set target. The FED's decision to keep key interest rates unchanged at 5.25 to 5.50% gives policymakers more time to evaluate the US economy, in the context of growth and the labor market seemingly signs of recovery.
The Fed's temporary pause and the continued increase have been assessed by some experts since June as a wrong move and risks leading to the re-establishment of the organization's own "stop and go" policy in the 70s and 80s of last century, as the Fed fluctuates between raising interest rates to reduce inflation and stopping them to boost economic growth. Ultimately, indecision caused the Fed to achieve neither of two such goals.
Until now, it is unknown whether the crisis will continue to occur like in the 70s and 90s of the 20th century. Although the Fed also forecasts that interest rates by the end of this year could be at 5.5-5.75%, meaning the possibility of an interest rate increase in the coming months, the inflation index has hardly decreased to 3.3% at the end of this year and came back to 2.0% in 2026 as the target set by the US Federal Reserve, and the current unexpected loosening policies may be a tentative measure but also can destroy the economy of the world's leading country.
Up to now, the most optimistic situation will be as announced by the Fed that it will increase its forecast for US economic growth this year to 2.1%, while the unemployment rate remains at about 3.8%.
It is expected that the cryptocurrency market will continue to grow in the following years.
3 reasons why people switch to cryptocurrency.
- The dollar price increases, the exchange rate also increases and some money transfers such as remittance, cross-border payments, etc. services will simultaneously increase prices.
For example, remittances from the US to Vietnam will be affected and costs will also increase. That is because, with a highly open economy like Vietnam, the pressure from outside is huge. When the USD increases in value and puts pressure on the exchange rate, the State Bank is forced to increase the exchange rate in the context of efforts to stabilize interest rates.
Meanwhile, in the opposite direction, money transfers using cryptocurrency are not affected by external monetary policies or unexpected exchange rate changes of national monetary authorities.
- Money transfer takes a long time.
The time limit for transferring money international usually lasts 7 working days or the fastest (if using some real-time money transfer methods, it also takes about 2 hours).
*Delays in overseas fund transfers also pose challenges to those on the receiving end of remittances. However, factors contributing to these delays are often beyond the control of the beneficiaries.
For example, banks have cut-off times for transactions, a factor further complicated by the varying public holidays observed in different regions. Moreover, the methods for sending funds can vary by country, with financial institutions requiring extra time for anti-fraud and anti-money laundering checks.
What further exacerbates these delays is often a lack of clear information, introducing another layer of complexity: a lack of transparency.*
However, switching the method of transferring money from fiat currency to cryptocurrency can help the time to send and receive money in just a few seconds, or even immediately after the sender completes the transfer procedures.
- Unbanked and underbanked can’t carry out money transfer orders or receiving money is very difficult.
In many cases in Vietnam, underbanked or unbanked recipients have difficulty receiving money when it is sent to the bank, and they must go there to complete procedures to receive money although they rarely receive money through these services.
The same goes for some countries in Southeast Asia and Africa. The percentage of people in the underbanked group in these countries is also very high, so most transactions are extremely difficult (or must go through an intermediary with a high cost) to get cash into the hands of consumers.
According to a World Bankreport published in July 2022, nearly 1.4 billion adults worldwide remain unbanked. Alarmingly, these adults are usually women, poorer, less educated, and live in rural areas.