Daily and intraday price data is used to assess the impact of FOMC announcements on the returns and volatility of Bitcoin.The interest rate decisions, monetary policy statements and press conferences held by the Federal Open Market Committee (FOMC) are one of the most important events in global markets. These events usually have a high impact on many assets, especially USD currency pairs, gold and oil. While bitcoin (BTC) is still a relatively small market it has often exhibited reactions to the actions of the FOMC.
In this article, we look at the impact of FOMC monetary policy announcements and press conferences on the price action of BTC-USD since 2015. Daily price data from the Bitcoin Liquid Index is used to examine the impact of FOMC statements/press conferences on BTC-USD by calculating abnormal returns and volatility, as well as the 7-day abnormal return after these events. Bitcoin’s 1-hour price data from Bitstamp is also used to assess the impact on returns and volatility.
The federal funds rate is the main tool of the Federal Reserve which is used to achieve its goal of 2% inflation and maximum employment. Most central banks have been independent of the government (althought accountable) to ensure the integrity of monetary policy. The federal funds rate sets a benchmark for the interest rates that banks use to lend to each other and therefore influence economic activity.
Another tool of the Fed — quantitative easing — involves the buying up of treasuries and mortgage-backed securities, taken onto the balance sheet of the central bank. Tools like quantitative easing were introduced as interest rates approached the lower zero bound after the Global Financial Crisis.
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Topic: How FOMC Announcements Affect the Price of Bitcoin (Read 182 times)