The US Federal Reserve reduced its benchmark federal funds rate by 25 basis points to the range of 4.25%-4.50%, its third consecutive easing move this year and now marks a total of 100 basis points of rate cuts since September.
Market participants fully expected Wednesday’s move by the central bank, but recent data had shown continued strong economic growth and buoyant inflation. This focused attention today on the policy statement, updated economic projections and the upcoming press conference with Chairman Jerome Powell for clues about the Federal Reserve’s thinking on future policy actions.
The Federal Reserve’s quarterly economic projections, which include the “dot plot” indicating where the central bank expects the Fed funds rate to adjust over time, reveal that policymakers expect the Fed funds rate declines to 3.9% by the end of 2025 or another 50 basis points. points on rate cuts next year. That’s higher than the 3.4% projected in September, indicating less dovish monetary policy in 2025. Fed members’ projections for personal consumption expenditure (PCE) and core PCE inflation for the next year rose to 2.5% from the September forecast of 2.1% and 2.2%. , respectively.
Already lower in the session, the price of bitcoin (BTC) fell from $104,000 after the announcement, falling to around $101,000 when Fed Chair Jerome Powell spoke to the press, a drop of almost 5% in the last 24 hours. Smaller cryptocurrencies fell further, with XRP, Cardano’s ADA, and Litecoin’s LTC falling almost 10%. The S&P 500 index also fell to a session low on Wednesday.
During the press conference following the FOMC decision, Federal Reserve Chair Jerome Powell said the projected slower path for further rate cuts is a reflection of higher inflation readings in previous months and inflation expectations. higher for next year.
“We are closer to the neutral rate, which is another reason for further moves,” Powell added.
Powell, responding to a question from a reporter about the idea of the government establishing a strategic reserve of bitcoins under President Donald Trump, said the Federal Reserve “cannot own bitcoins” under the Federal Reserve Act and is not seeking a change of law.
“I think the biggest headache for the Fed right now is the fact that financial conditions have still tightened even though the Fed cut rates,” Andre Dragosch, European head of research at the Fed, told CoinDesk. Bitwise, ahead of today’s action. “Long-term bond yields and mortgage rates have risen since September and the dollar has appreciated, which also implies a tightening of financial conditions.”
“A continued appreciation of the US dollar also poses a macro risk for bitcoin, as dollar appreciation is also associated with the contraction of the global money supply, which tends to be bad for bitcoin and other crypto assets,” Dragosch continued. “In fact, the Fed’s net liquidity continues to decline. In my opinion, the liquidity shortage and the strength of the dollar are also the biggest risk for BTC… On the other hand, the on-chain factors for BTC remain of strong support, particularly the current decline in exchange balances which supports the hypothesis that the BTC supply deficit continues to intensify.”
UPDATE (December 18, 20:23 UTC): Updates price action after Fed Chairman Jerome Powell’s press conference.
