Federal Reserve Maintains Interest Rate Amid Economic Changes
The Federal Reserve decided to keep its benchmark interest rate steady on Wednesday, pausing its recent series of rate cuts that had seen three consecutive reductions. Initially, Bitcoin experienced a sharp decline, but it quickly rebounded to reach a three-day peak. The Fed’s decision, anticipated by futures traders, maintained the federal funds rate within a target range of 4.25% to 4.50%. When the Fed began its easing strategy in September, the benchmark rate was a full percentage point higher, marking its highest level in 23 years.
Fed Chair Highlights Rebalancing and Inflation Progress
Fed Chair Jerome Powell stated that this adjustment in policy was warranted due to progress in controlling inflation and a rebalancing in the labor market. He emphasized the importance of not rushing into policy adjustments at this stage. The central bank’s shift towards lowering interest rates typically supports riskier assets, such as stocks and cryptocurrencies, indicating a prioritization of labor market support over aggressive inflation control.
Concerns About Inflation and Political Influences
During the December meeting, the Fed adopted a more cautious stance, recognizing the strengthening U.S. economy while also identifying increased risks to its inflation outlook. This shift in perspective was influenced by the political landscape, particularly with President Donald Trump’s administration, which raised concerns about potential obstacles to achieving the Fed’s 2% inflation target due to changes in immigration and trade policies. Reports suggest that Trump’s administration is considering a gradual implementation of universal tariffs.
Rate Projections Adjusted Amid Economic Uncertainty
At the December meeting, Fed officials anticipated only two rate cuts of a quarter percentage point in the upcoming year, a decrease from the four cuts previously projected in September. The Fed refrained from providing new economic or monetary policy forecasts during Wednesday’s announcement, citing uncertainty in the economic outlook.
Bitcoin’s Reaction to Fed’s Decision
Following the Fed’s announcement, Bitcoin’s value dropped from approximately $103,000 to $101,400 within a short timeframe. However, it quickly recovered, currently trading around $103,800, reaching its highest level since Sunday. The Fed’s choice to halt rate cuts comes after Trump publicly urged for lower interest rates at the recent World Economic Forum in Davos, Switzerland. Powell refrained from addressing Trump’s comments during a press conference, noting that commenting would be inappropriate and mentioning he had not communicated with the president since he took office.
Inflation Trends and Market Speculation
Though inflation has significantly decreased from a peak of 9.1% in 2022, it still registered at 2.9% for the year ending in December, according to a recent government report. This figure helped alleviate some concerns about inflation following a positive jobs report. After Bitcoin’s price fell below $90,000 two weeks ago, some economists speculated that the Fed’s easing measures were concluding, given the strength of the U.S. economy. Traders had estimated a 28% likelihood of a rate cut in March, just prior to the Fed’s announcement.
Powell’s Insights on Current Economic Conditions
In Wednesday’s press conference, Powell remarked that a federal funds rate of 4.3% is assisting the committee in reaching its objectives, suggesting that future rate cuts remain a possibility if inflation continues to decline. He noted the positive effects of current rates on controlling inflation and restoring balance to the labor market. The personal consumption expenditures price index, which the Fed prioritizes as an inflation measure, showed a 2.4% annual increase in November, with expectations for a 2.6% rise in the upcoming report, according to Trading Economics.
