The U.S. Federal Reserve (Fed) confirmed its second consecutive rate cut this Wednesday. The decision reduces interest rates by 25 basis points. The new range is now set between 3.75% and 4%. The announcement regarding the Fed rate cut and Bitcoin generated an immediate volatile reaction in the cryptocurrency market.
The Federal Open Market Committee’s (FOMC) decision was made with a 10-to-2 vote. This move occurred despite a complex backdrop, marked by a 29-day government shutdown. This shutdown prevented the FOMC from accessing crucial economic data that usually guides monetary policy. The dissenting votes reflected internal division. Joseph Miran advocated for a more aggressive 50-point cut. On the other hand, Jeffrey Schmid preferred to keep rates unchanged. Additionally, the central bank announced it will end its reduction of asset purchases on December 1st.
Powell warns of inflation despite a cooling labor market
In the subsequent press conference, Fed Chair Jerome Powell justified the measure. Powell pointed to the cooling labor market as the primary driver of the decision. However, he also warned that inflationary pressures might become more persistent in the coming months. Powell assured that the economy is expanding at a moderate pace, despite the delayed federal data. He mentioned a GDP growth of 1.6% in the first half of the year. He attributed the slowdown to lower labor participation and reduced immigration.
Is the momentum over for risk assets?
The initial reaction from the cryptocurrency market was marked volatility. Following the announcement, the price of Bitcoin fluctuated rapidly. It moved in a choppy range between $109,000 and $111,000 as investors digested the news. As of this writing, the main cryptocurrency is trading above $111,000. This represents a 3.34% drop in the last 24 hours, according to market data. Investors are now trying to decipher Powell’s mixed tone.
Powell’s statements have cast doubt on the possibility of more rate cuts this year. The Fed Chair reiterated that they are absolutely committed to returning inflation to 2%. This firm stance, combined with the current cut, leaves the market in a state of suspense. The uncertainty about future monetary policy could maintain volatility in Bitcoin and other risk assets in the short term.
