The Federal Reserve has shifted back into a mitigation stance after a long wait of about ten months to assess its approach to the U.S. economy.
In a much-anticipated decision on Wednesday, the U.S. Central Bank lowered the benchmark interest rate range to 25 basis points, bringing it to between 4% and 4.25%.
The Fed acknowledged that it had “mitigated” economic growth during the first half of the year, which, according to Powell, led to a “slowed” job market. He mentioned that this decline was significantly influenced by changes in immigration. Still, he indicated that there wasn’t a strong consensus for a more substantial cut in rates, emphasizing the need to wait for reductions to materialize before acting more aggressively.
This decision comes on the heels of evidence suggesting a marked weakening in the U.S. labor market. The August employment report was particularly telling, showing only 22,000 new jobs added, which pushed the unemployment rate up to 4.3%, the highest level seen since 2021.
“The Fed is facing pressure to act more recklessly, and Powell’s successor might favor quicker and deeper rate cuts,” noted Chris Lane, head of Galaxy’s liquid activity strategy. “The recent cut has raised the valuation of risk assets, but the adjusted dot plot aligns with recent projections from analysts, suggesting another 50 basis points cut may follow.”
Moreover, revised data from the past few months indicates that far fewer jobs have been created than initially reported.
On the political front, President Trump has repeatedly criticized the federal government’s reluctance to act, a situation that Powell addressed during a press conference, asserting that the Fed remains “strongly committed to protecting its independence.”
Potential “New Highs” for Bitcoin
In the minutes following the rate reduction, Bitcoin’s prices fluctuated, initially increasing by about 1% but then dropping about 1.5% to trade around $115,092.
Major U.S. equity indices had been repeatedly hitting record highs just before the Fed’s announcement. Following the news, while there was a brief surge, a significant decrease followed. Gold mirrored this pattern as well.
Matt Mena, a 21-year-old crypto research strategist, commented, “That heightened risk is now central to the discussion, creating a unique setup for Bitcoin. Today’s 25 basis point cut sparked interest, but the implications of the dot projections might be more significant in paving the way for Bitcoin to reach new highs by year-end.”
Looking Ahead
A glance at the Fed’s dot plot reveals a divided perspective among committee members about the remainder of the year. A slim majority within the Federal Open Market Committee (FOMC) believe additional rate cuts could still be on the horizon.
Seven of the 19 committee members foresee stable prices holding throughout the year.
Updates: (as of September 17, 18:18 UTC) Added dot plot projections and market comments.
Updates: (as of September 17, 18:39 UTC) Included market estimates.
Updates: (as of September 17, 18:45 UTC) Added a quote from Federal Reserve Chairman Jerome Powell.
