In a move widely anticipated by financial experts, the US Federal Reserve announced a reduction in interest rates by 0.25% yesterday. The decision, unveiled by Fed Chairman Jerome Powell during a press conference, is part of a broader strategy aimed at stabilizing the nation’s economic landscape. However, Powell underscored a cautious stance, indicating that any further rate adjustments will be meticulously evaluated.
US Fed Rate Cut & Inflation Goals: What You Should Know
The recent adjustment brings the US Fed Fund interest rate down to 4.5%, marking the third significant rate change this year. Initially, on September 18, the rate was cut to 5%, followed by another reduction on November 7 to 4.75%. Powell reiterated the Fed’s dedication to bolstering the economy and supporting the labor market. Nonetheless, he clarified that future rate cuts would depend on several crucial factors, including emerging economic data, the broader economic outlook, and potential risks related to inflation.
At the beginning of the year, the US inflation rate stood at 3.1%, peaking at 3.5% in March. A gradual decline ensued, reaching a yearly low of 2.4% in September. However, inflation has since been on an upward trajectory, climbing to 2.7% by November. These fluctuations underline the Fed’s challenge in maintaining economic equilibrium.
Market Reactions: Stocks and Crypto Plunge
The announcement of the rate cut on December 18 triggered notable volatility across financial markets. The cryptocurrency sector experienced a decline of approximately 0.58% on the day of the announcement. Bitcoin, a bellwether for the crypto market, saw its price drop from $106,080.05 at the day’s start to $100,207.97 by the close, resulting in a significant decrease of 5.85%. Likewise, the S&P 500 index fell by over 2.90%, reflecting investor concerns.
Altcoins Face Steeper Challenges
The broader cryptocurrency market, excluding Bitcoin, also faced substantial challenges. At the start of December 18, the total market capitalization was $1.53 trillion. By the end of the day, it had decreased to $1.42 trillion, indicating a 7.74% downturn. Various altcoins experienced notable declines, with Ethereum dropping by over 4.7%, XRP by 6.8%, BNB by 1.6%, Solana by 3.3%, Dogecoin by 6.2%, and Cardano by 4.9%.
In summary, the Federal Reserve’s current approach suggests that financial markets may continue to face headwinds. As the Fed navigates the complexity of economic indicators and inflation concerns, investors should prepare for potential fluctuations in both traditional and digital asset markets.
