Fed Cuts Interest Rates by 25 Basis Points, Bitcoin Slips Below $104K on Hawkish Tone

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What to know:

  • The Federal Reserve has cut its benchmark fed funds rate by 25 basis points to the 4.25%-4.50% range.
  • The “dot-plot” projects the Fed lowering rates to 3.9% next year, signaling fewer cuts than in the previous projection.
  • Fed Chairman Jerome Powell will hold a post-meeting press conference at 2:30 pm ET.

As an analyst with over two decades of experience in financial markets, I find myself constantly intrigued by the dance between central banks and global economies. Today’s Federal Reserve decision to lower its benchmark fed funds rate once again is yet another move that underscores the delicate balance these institutions must maintain.

As a crypto investor, I’ve just learned that the U.S. Federal Reserve has reduced its key interest rate by 0.25%, bringing it to a range of 4.25% – 4.50%. This is their third such reduction this year and adds up to a total of 1 percentage point since September. In simpler terms, the Fed is making money cheaper to borrow, possibly signaling a more accommodative monetary policy stance.

Market participants were well-prepared for the central bank’s move on Wednesday, but recent data indicates persistent strong economic expansion and rising inflation rates. As a result, attention shifted towards the policy statement, revised forecasts, and the subsequent press conference with Chair Jerome Powell to glean insights into the Federal Reserve’s potential future policy decisions.

The Federal Reserve’s quarterly forecasts show that policymakers anticipate a decrease in the Fed funds rate to approximately 3.9% by the end of 2025, equivalent to another half percent reduction in rates next year. This is higher than the 3.4% projected in September, suggesting a more hawkish monetary policy stance for 2025.

During the course of the session, the value of Bitcoin (BTC) dipped somewhat but still hovered around $104,000 shortly after the announcement. Simultaneously, the S&P 500 index reached its lowest point for the day on Wednesday.

In simpler terms, as reported by CoinDesk before today’s move, Andre Dragosch, European Head of Research at Bitwise, stated that the main challenge for the Federal Reserve is that financial conditions continue to become more restrictive, even though the Fed reduced interest rates. This is evident in the rise of long-term bond yields and mortgage rates since September, as well as the strengthening of the U.S. dollar, which further tightens financial conditions.

The consistent increase in value of the US dollar could potentially present a significant risk at a macro level for Bitcoin. This is because an increase in the dollar’s value often corresponds with a reduction in global money supply, which can negatively impact Bitcoin and other cryptocurrencies. In essence, Dragosch explained that as the Fed’s liquidity continues to shrink, a strong dollar becomes one of the biggest threats for Bitcoin. However, it’s worth noting that on-chain indicators for Bitcoin remain quite positive, particularly the persistent decrease in exchange balances. This trend supports the idea that the scarcity of Bitcoin is becoming more pronounced.

At 2:30 PM Eastern Time, Federal Reserve Chair Jerome Powell is scheduled to conduct a press conference following their meeting, offering additional insights into the future plans of the U.S. Federal Reserve.

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2024-12-18 22:32