Is inflation in check? The Fed has cut interest rates for the first time in four years

The Federal Reserve cut its benchmark interest rate by 50 basis points on Wednesday, kicking off its long-awaited easing cycle in a dramatic first step.

The Federal Open Market Committee (FOMC) decided to cut the federal funds rate from 4.75% to 5.00%, the first rate cut in four years. Minutes before the decision, traders have already seen the possibility of a 61 percent decline CME group.

Meanwhile, the price of Bitcoin has fallen 1.7% over the past day, falling to around $60,000 at the time of writing. Ahead of Wednesday's price cut decision, the asset's value fell along with Ethereum and Solana, which fell 2.6% to $2,300 and 3.1% to $129, respectively.

Shortly after the Fed's announcement, Bitcoin finally rose above the $61,000 price point, but has cooled to $60,700 in the latest update to this story.

“Inflation showed further progress toward the Committee's 2 percent objective but remained somewhat higher,” the FOMC said in a statement. “Given the progress on inflation and the balance of risks, the committee decided to lower the federal funds rate by 1/2 percentage point.”

During a press conference, Fed Chairman Powell described Wednesday's cut as a “reset.” The latest economic indicators show that the economy continues to grow, but “the downside risks to inflation are diminishing and the downside risks to employment are increasing.”

Alongside the rate cuts on Wednesday, federal officials published a “summary of economic projections.” In that release, a so-called dot plot shows policymakers believe the federal funds rate will be closer to 4.5% by the end of the year.

Forecasts released in June indicated that inflation would moderate by the end of 2024, with the median forecast at around 5%. In addition, officials have projected the federal funds rate to fall to about 4% by the end of 2025, and those projections have also fallen to 3.25%.

In the year He emphasized the change in the Fed's rate of inflation, which was at a four-decade high of 9.1% in 2022. Inflation has slowed in recent months – last week's reading showed. Inflation reached 2.5 percent 12 months to August – The Fed's focus has shifted to supporting the cooling US labor market.

“It's time to adjust policy,” Powell said he said. A month ago, the US central bank said it “does not seek or accept further cooling in labor market conditions.”

The Fed's decision was met with uncertainty on Wednesday. Following last week's inflation hike, expectations have strengthened around a 25-basis-point rate cut. However, traders' expectations of a 50-basis-point rate cut strengthened in the published articles Wall Street Journal And Financial Times That's what he said. proposed that Wednesday's meeting will be a close call.

As the market realigned, Bitcoin ETFs appeared. Increase in flows. The increase indicates that “Bitcoin is acting as a leverage tool for investors willing to take risks,” said Matt Hogan, chief investment officer of asset manager Bitwise. Post On Twitter (aka X).

Powell acknowledged Wednesday's cut was significant, but said at a press conference that the move was far from overt. Instead, Powell described the move as “a determination not to back down.”

“We've had a pretty strong start to this, and that's really a sign of our belief that inflation will come down to 2% sustainably,” Powell said. “I'm so glad we did […] But I think we're going to be careful when we're meeting.

What does it mean for Bitcoin?

They have analysts he said. The dollar's strength could weaken as the Fed cuts rates, supporting assets like gold and bitcoin. Still, some fretted that the Fed would surprise markets with a 50-basis-point rate cut if an economic slowdown leads to higher risks.

James Butterfill, Head of Research at CoinShares, told Decrypt in a written statement that Wednesday's price cut decision is positive for Bitcoin. If financial conditions ease in the coming months, lower borrowing costs should support property values, he said.

“The federation has taken decisive action and it is unusual from a historical point of view,” he said. But if you want to keep the American economy on track, it's definitely the right course.

Grayscale's head of research, Zach Pandle, told Decrypt in a written statement that the Fed's “willingness to take on risks related to inflation is driving investors to move assets like gold into Bitcoin.”

Pandl said in the FOMC statement that “inflation is somewhat elevated,” but noted the Fed's decision to cut at a jumbo rate.

Hashdex Chief Investment Officer Samir Kerbege said. Decrypt It should be the beneficiary of a looser monetary policy, covering factors such as geopolitical tensions and the uncertainty of elections in the coming months.

“Our long-term investment theory for bitcoin is unpredictable and will remain regardless of the direction of monetary policy in the near future,” he said. “Markets Should Benefit from Fed's Normalization of Dovish Shift.”

During the press conference, Powell took a moment to clarify that the US central bank is not yet targeting inflation. While policymakers have made progress on the road to sustainable rate hikes, he says there is still a long way to go.

“We're not saying it's mission accomplished or anything like that,” Powell said. “But I have to say, though, we're encouraged by the progress we've made.”

Edited by Andrew Hayward.

Editor's note: This story was revised after publication to include comments from Powell and analysts.