Cryptocurrency

Fed Cuts Interest Rates by 0.25%

Federal Reserve Concludes Final Policy Meeting of 2024 with Rate Cut

The US Federal Reserve has concluded its eighth and final policy meeting for 2024, marking a significant decision after a two-day Federal Open Market Committee (FOMC) gathering. The central bank has opted to reduce interest rates by 25 basis points (bps), marking the third rate cut of the year. This decision aligns with the expectations of Wall Street, which had anticipated this move following a similar rate reduction in November that brought the benchmark rates down to 4.50% – 4.75%.

Market Expectations and Economic Context

Market analysts were largely confident in predicting this rate reduction, as indicated by the CME Group’s FedWatch tool, which suggested a 99% probability of such a move. This policy decision arrives on the heels of Republican Donald Trump’s sweeping victory in the 2024 US Presidential elections. In the preceding September meeting, the Federal Reserve had already reduced the benchmark interest rate by 50 basis points to a range of 4.75% – 5%, a first in four years, driven by policymakers’ optimism that inflation was steadily approaching the desired target.

Fed’s Cautious Approach to Future Rate Cuts

Despite the current rate cut, the Federal Reserve is not in a rush to slash rates further. Policymakers project a gradual reduction in the benchmark interest rate, with expectations of a half-point decrease by the end of the year, followed by a full percentage point in 2025, and a final half-point in 2026, ultimately stabilizing within a 2.75% – 3.00% range. Fed Chair Jerome Powell has emphasized a careful approach to rate adjustments, reflecting the committee’s cautious stance.

Goldman Sachs analysts have pointed to a speech by Beth Hammack, President of the Federal Reserve Bank of Cleveland, highlighting that resilient economic growth, a robust labor market, and persistent inflation support the need for a moderately restrictive monetary policy. This approach, Hammack argues, could help achieve a sustainable return to a 2% inflation rate promptly.

Cryptocurrency Market Reaction

The Federal Reserve’s rate cut decision has implications for the cryptocurrency market as well. Min Jung, a research analyst at Presto Labs, observed that while a rate reduction typically favors Bitcoin’s price, the market had already factored in the anticipated 25 basis point cut. Consequently, the immediate impact on Bitcoin’s valuation may be limited.

Jung highlighted that market participants would now focus on the December FOMC meeting’s Summary of Economic Projections and Powell’s remarks regarding future rate cuts. Any unforeseen developments or surprises from these elements are expected to be pivotal in shaping Bitcoin’s price movements.

Recently, Bitcoin (BTC) experienced a temporary pause after reaching a record high of $108,268, as traders eagerly awaited the Federal Reserve’s anticipated interest rate cut and expressed optimism about strategic Bitcoin reserve initiatives.

In conclusion, the Federal Reserve’s latest policy decision underscores a measured approach to interest rate adjustments, reflecting broader economic conditions and market expectations. As the central bank navigates the complexities of monetary policy, its actions continue to influence various sectors, including traditional financial markets and the dynamic cryptocurrency landscape.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button