The U.S. Federal Reserve has implemented a 25 basis point reduction in its benchmark fed funds rate, bringing it to a range of 4.25%-4.50%. This marks the third consecutive rate cut this year, totaling a 100 basis point decrease since September.
While market analysts anticipated this move, recent economic data indicated robust growth and rising inflation, prompting attention to the Fed’s policy statement and Chairman Jerome Powell’s press conference for insights on future monetary policy.
The Fed’s updated economic projections suggest a decline in the fed funds rate to 3.9% by the end of 2025, indicating a shift towards a less dovish stance compared to the previous forecast of 3.4%.
Additionally, projections for Personal Consumption Expenditures (PCE) and core PCE inflation for next year have increased to 2.5%, up from earlier estimates of 2.1% and 2.2%, respectively.
Following the announcement, Bitcoin’s price fell from $104,000 to around $101,000, reflecting a nearly 5% drop within 24 hours. Other cryptocurrencies like XRP, Cardano’s ADA, and Litecoin’s LTC experienced declines of nearly 10%. The S&P 500 index also hit a session low.
During the press conference, Powell attributed the slower pace of future rate cuts to recent inflation trends and heightened inflation expectations. He emphasized that the Fed is nearing the neutral rate, influencing their decision-making process. Addressing a question about the potential for a strategic bitcoin reserve, Powell clarified that the Fed is prohibited from owning bitcoin under the Federal Reserve Act.
Experts, such as Andre Dragosch from Bitwise, noted that despite rate cuts, financial conditions have tightened, with rising long bond yields and mortgage rates.
The strengthening dollar poses additional risks for Bitcoin, as it often correlates with a contraction in the global money supply. However, on-chain factors for Bitcoin remain positive, particularly the decline in exchange balances, suggesting a tightening supply.
