Key facts:
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The FOMC set a 0.50% cut in interest rates.
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Markets, including Bitcoin, initially reacted bullishly.
The Federal Reserve (Fed), the central bank of the United States, has just published the decision of the Open Market Committee (FOMC), its body in charge of monetary policy. It set a cut in interest rates by 0.5%, which now means that they are at 5.0%, something to which the markets reacted with high volatility.
This is the first Fed rate cut in more than four years since March 2020.which cuts short the organization’s prolonged aggressive monetary policy. As seen below, for more than a year, rates have remained at 5.5%, their highest level in two decades.
Interest rates in the United States. Source: Investing.
The cut was according to part of expectationsalthough many expected a rate move to 5.25%, as reported by CriptoNoticias and seen below. This explains the reaction seen in the markets.
US Interest Rate Outcome and Forecast. Source: Investing.
With the announcement, the price of bitcoin (BTC) reacted to the upside by quickly climbing to $61,000 (USD), as shown in the chart below. Meanwhile, it remains within the corrective sideways range it has been in for six months after having reached a new all-time high in March 2024.
Bitcoin price so far this day. Source: TradingView.
A rate cut lowers the cost of borrowing and increases liquidity, thus allowing for more capital to flow into the markets. However, the current measure occurs amid a slowdown in employment in the economic powerhouse that faces risks of recession, which could put headwinds if it doesn’t improve.
Powell says labor market strength can be maintained
Jerome Powell, Chairman of the Fed, said in his speech after the announcement of rates that are committed to maintaining the strength of the economy“This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, the strength of the labor market can be maintained,” he added.
Against this backdrop, upcoming employment data is expected to determine the direction of the markets. In the meantime, traders are likely to remain on the lookout and see high volatility as more clarity on the economy emerges.
“The 50 basis point cut tells us that Powell is seeing that things are getting complicated and that employment is bad,” commented Daniel Muvdi, head of markets at trading platform Quantfury, believes this could lead to a temporary correction in the markets and an upward trend by 2025 when the economy shows signs of strength.
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