The Federal Reserve lowered its benchmark interest rate by 50 basis points Wednesday, kicking off its long-anticipated easing cycle with a sizable first step.
The Federal Open Market Committee (FOMC) decided to lower the federal funds rate to a target range of 4.75% to 5.00%, marking its first rate cut in four years. Minutes before the decision, traders foresaw a 61% chance of a supersized cut, according to the CME Group.
Meanwhile, Bitcoin’s price has decreased 1.7% over the past day, falling to $60,000 as of this writing. The asset’s price dipped ahead of Wednesday’s rate-cut decision, along with Ethereum and Solana, which were down 2.6% to $2,300 and 3.1% to $129, respectively.
“Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated,” the FOMC said in a statement. “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point.”
Alongside Wednesday’s reduction in rates, Fed officials published a “Summary of Economic Projections.” Within that release, a so-called dot plot indicated that policymakers believe the federal funds rate will settle close to around 4.5% by year’s end.
Projections released in June pointed to a less pronounced drop in rates by the end of 2024, showing a median forecast of around 5%. Additionally, officials foresaw the federal funds rate falling to around 4% by the end of 2025, and those projections were lowered to 3.25% as well.
Wednesday’s rate cut accentuated a shift in the Fed’s fight against inflation, which peaked at a four-decade high of 9.1% in 2022. As the pace of inflation has slowed in recent months—a readout last week showed inflation ran 2.5% in the 12 months through August—the Fed’s focus has moved toward supporting a cooling U.S. labor market.
“The time has come for policy to adjust,” Fed Chair Powell said a month ago, adding that the U.S. central bank does not “not seek or welcome further cooling in labor market conditions.”
The Fed’s decision Wednesday was marked by uncertainty. Following the inflation readout last week, expectations solidified around a 25-basis-point rate cut. Yet traders’ expectations of a 50-basis-point rate cut strengthened following articles published in the Wall Street Journal and Financial Times that suggested Wednesday’s meeting would be a close call.
As markets recalibrated, spot Bitcoin ETFs saw inflows surge. The increase indicated that “Bitcoin is establishing itself as a go-to tool for investors looking to go risk-on,” Matt Hougan, the Chief Investment Officer of the asset manager Bitwise, said in a post on Twitter (aka X).
Analysts have said that the dollar’s strength will likely weaken as the Fed cuts rates, supporting the value of assets like gold and Bitcoin. Still, some are weary that the Fed will startle markets with a 50-basis-point rate cut if it leads to heightened fears of an economic slowdown.
Hashdex’s Chief Investment Officer Samir Kerbage told Decrypt in a written statement that risk assets like Bitcoin should benefit from looser monetary policy, overshadowing factors like geopolitical tension and election uncertainty in the coming months.
“Our long-term investment thesis for bitcoin remains intact and regardless of the near-term direction of monetary policy,” he said. “Markets should benefit from the formalization of the Fed’s dovish shift.”
Edited by Andrew Hayward
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