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Fed Cuts Interest Rates by 50bps, Bitcoin Soars to $62,500
The Federal Reserve has officially lowered the federal funds rate by 50 basis points to 4.75%-5.00%, marking its first rate cut since March 2020. This move has sparked a significant rally in the cryptocurrency market, with Bitcoin breaking the $62,500 barrier, outperforming both the U.S. stock market and spot gold.
Intriguingly, experts from various institutions suggest that this 50 basis point reduction in September is just the beginning, with potential further cuts anticipated within the year, potentially totaling a reduction of 76 basis points by the end of 2024.
Cryptocurrency Outshines Traditional Markets Post-Fed Cut
The anticipation for this rate cut has been building for four years, yet the financial markets’ reactions were mixed upon the announcement. While the major U.S. stock indexes turned negative, erasing gains since the Fed’s rate decision, spot gold also completely relinquished its post-decision gains. In contrast, the cryptocurrency market experienced across-the-board surges, with Bitcoin notably soaring past $62,500.
Brad Bechtel, Global Head of FX at Jefferies, noted the market was split almost evenly on expectations before the Fed’s decision, hence the Fed’s action surprised half of the market participants. The Fed aims to provide support before a significant economic slowdown occurs. Yet, so far, the market’s reaction has not been overly dramatic, with much already priced in.
Following the Fed’s lead, the Hong Kong Monetary Authority also announced a 50 basis point cut in its base rate to 5.25%, and the government of Louisiana has agreed to accept Bitcoin payments.
Fed Chair Jerome Powell emphasized that the Fed has not declared victory over inflation but acknowledged the economic outlook is beginning to look optimistic, and the adjustment should help sustain economic and labor market strength.
Global Reactions and Future Prospects
The Fed’s rate cut has sparked widespread market discussions, with varied interpretations among institutions. Nick Timiraos, known as the “Fed’s megaphone,” remarked that the decision to cut rates by 50bps, supported by 11 out of 12 Fed officials, kicks off a bold start to easing policies. The recent quarterly projections suggest most officials expect at least a 25bp cut at the meetings in November and December. This rate cut marks a firm step by the Fed into a new phase: attempting to prevent last year’s rate hikes from further weakening the U.S. labor market.
Lindsay Rosner, a multi-asset investment director at Goldman Sachs, suggests the Fed has delivered what the market desired. Despite some Fed officials arguing in recent weeks that the economy was not weak enough to justify a 50bp cut, others felt that cooling in the labor market this summer warranted further easing, as the Fed was essentially making up for lost time.
As discussions about future rate cuts continue, market dynamics and economic indicators will play critical roles in shaping the Fed’s actions in the coming months, potentially leading to a more accommodative policy environment that could further bolster the burgeoning crypto market.
