Federal Reserve Maintains Interest Rate Amid Market Reactions
The Federal Reserve decided to keep its benchmark interest rate steady on Wednesday, opting to pause its series of rate cuts after three consecutive reductions. Initially, Bitcoin saw a notable drop but quickly rebounded to reach its highest level in three days. The Fed’s decision, anticipated by market participants, maintained the federal funds rate within the range of 4.25% to 4.50%. When the Fed began its easing policy in September, the interest rate was a full percentage point higher, marking a peak not seen in 23 years.
Fed Chair Discusses Policy Adjustments
Jerome Powell, the Chair of the Fed, stated that the current policy adjustment was suitable given the progress made on inflation and the stabilization of the labor market. He emphasized that there is no urgency to modify the policy stance at this time. The Fed’s shift towards lowering interest rates was seen as a positive sign for risk assets like stocks and cryptocurrencies, indicating a prioritization of supporting the labor market over strictly controlling inflation.
Cautious Outlook Amid Economic Strength
During its December meeting, the Fed adopted a more cautious perspective, highlighting that the U.S. economy showed signs of resilience. Policymakers noted an increase in risks to their inflation outlook, particularly with the uncertainty surrounding the new presidential administration. Under the leadership of Donald Trump, there were concerns that efforts to curb inflation to the 2% target might be hindered by potential changes in immigration and trade policies.
Revised Rate Cut Expectations
At the December meeting, the Fed revised its earlier forecast, now anticipating only two quarter-percentage-point rate cuts for the year, a reduction from the previously projected four cuts. On Wednesday, the Fed refrained from presenting new economic or monetary policy forecasts, stating that the economic outlook remains uncertain.
Bitcoin’s Price Fluctuates Post-Decision
Following the Fed’s announcement, Bitcoin’s value experienced a decline, dropping to approximately $101,400 from around $103,000 within a span of 30 minutes. However, the cryptocurrency quickly recovered, now trading at about $103,800—its highest value since Sunday.
Political Pressure and Powell’s Response
The Fed’s decision to hold rates steady comes in light of pressure from President Trump, who recently expressed his intent to advocate for lower interest rates during the World Economic Forum in Davos, Switzerland. In response to inquiries regarding Trump’s comments, Powell stated it would be inappropriate for him to address the matter, clarifying that he has not had any communication with the president since Trump took office.
Inflation Trends and Economic Indicators
Inflation has notably decreased from its peak of 9.1% in 2022, with recent data indicating a rate of 2.9% over the 12 months leading to December. This figure has helped to alleviate concerns about inflation following a strong jobs report. After Bitcoin’s drop below $90,000 a fortnight ago, some economists speculated that the Fed’s easing measures were concluding, attributing this to the apparent strength of the U.S. economy. Just prior to the Fed’s decision on Wednesday, traders estimated a 28% likelihood of a rate cut occurring in March, according to CME FedWatch.
Future Rate Cuts Remain Possible
During the press conference on Wednesday, Powell remarked that an effective federal funds rate of 4.3% is aiding the committee in achieving its objectives. His comments suggested that rate cuts could still be considered if inflation continues to decrease. Powell noted, “We see that it’s having meaningful effects in bringing inflation under control,” indicating that the current measures have positively influenced the balance of the labor market as well.
Inflation Measurement Insights
The personal consumption expenditures price index, which is the Fed’s preferred measure of inflation, rose by 2.4% annually in November. A new update is expected to be released on Friday, with forecasts suggesting an increase of 2.6% on an annual basis, according to Trading Economics.
