Federal Reserve Cuts Rates by 25 Basis Points, Markets React Sharply
As anticipated, the Federal Reserve reduced its benchmark federal funds rate by 25 basis points to a target range of 4.25%-4.50%, marking its third consecutive rate cut this year and bringing the total reduction to 100 basis points since September. However, it was Fed Chair Jerome Powell’s hawkish tone during the subsequent press conference that drew market attention.
While Wednesday’s rate cut was widely expected, recent economic data showing resilient growth and persistent inflation shifted focus to the Fed’s policy statement, updated economic projections, and Powell’s remarks for clues about the central bank’s future monetary stance.
The Fed’s quarterly economic projections, including the closely-watched “dot plot,” indicated a less aggressive path for rate cuts in 2025. Policymakers now foresee the federal funds rate at 3.9% by the end of 2025, up from the 3.4% projection in September. Inflation expectations also ticked higher, with Personal Consumption Expenditures (PCE) inflation forecasted at 2.5% next year, compared to September’s 2.1%.
Bitcoin and Cryptos React
Bitcoin (BTC) saw a sharp decline following the Fed’s announcement, dropping from $104,000 to around $101,000—a 5% dip within 24 hours. Altcoins suffered even steeper losses, with XRP, Cardano’s ADA, and Litecoin’s LTC all down nearly 10%. Traditional markets also felt the pressure, as the S&P 500 slid to session lows.
During the press conference, Powell attributed the slower pace of projected rate cuts to elevated inflation readings and increased inflation expectations. “We are closer to the neutral rate, which is another reason to approach further moves cautiously,” Powell stated.
Addressing speculation about a potential government-backed bitcoin reserve under the Trump administration, Powell clarified that the Federal Reserve, under its current mandate, is prohibited from holding bitcoin and has no intention of seeking a legislative change to alter this.
Market Implications
Andre Dragosch, European Head of Research at Bitwise, highlighted the Fed’s predicament ahead of the announcement. “Financial conditions have tightened despite rate cuts. Long bond yields and mortgage rates are rising, and the dollar’s appreciation signals tightening financial conditions,” Dragosch explained.
He also warned of the macro risks posed by a stronger U.S. dollar for crypto markets. “Dollar strength often corresponds with global money supply contraction, which tends to negatively impact bitcoin and other crypto assets,” Dragosch noted. However, he pointed to on-chain metrics as a silver lining for BTC. “The ongoing decline in exchange balances suggests a tightening bitcoin supply, which continues to support the case for a supply deficit.”
Despite tighter financial conditions and a strengthening dollar, Powell’s hawkish remarks reinforced the Fed’s cautious approach as it navigates a complex economic environment marked by inflationary pressures and tightening liquidity. For the crypto markets, these factors remain key drivers in the months ahead.
