Simply put
- The CME FedWatch tool, using futures trading data to gauge trader sentiment, indicated a high likelihood of a rate cut.
- The Conference Board’s Expectations Index, an indicator of business confidence, remains below the level that typically signals an impending recession.
- Bitcoin is significantly lower than its all-time high reached earlier this month.
The U.S. central bank lowered interest rates by 0.25% on Wednesday, a move that was anticipated but didn’t really shake up the crypto markets. However, prices took a hit after Federal Reserve Chairman Jerome Powell mentioned that a rate cut in December is “not a foregone conclusion.”
Currently, Bitcoin is trading around $110,700, having dropped 1.3% in just the last hour. It’s more than 10% down from earlier this month when it fell below $105,000. Ethereum, the second-largest cryptocurrency, is around $3,890, down 2.7% within the same timeframe.
On Tuesday, the CME FedWatch tool projected a better than 99% chance of a recent rate cut and suggested over a 90% probability for a 0.25% cut in December.
Jerry O’Shea, head of global market insights at Hashdex, noted that “Today’s decision to cut the federal funds rate by another 25 basis points was highly anticipated. Bitcoin and many other digital assets reacted negatively after Chairman Powell commented that further cuts this year are not guaranteed.”
O’Shea also mentioned that external factors such as a potential government shutdown, tariff policies, and upcoming earnings reports from major tech firms could weigh more heavily on market prices this week.
The Federal Reserve adjusted the interest rate for overnight loans between banks, now sitting in the range of 4% from 3.75%, in light of employment data and other indicators showing a slowdown in the U.S. economy.
“Considering changes in the risk balance, the committee decided to lower the target range,” stated the Fed.
The vote was not unanimous, as at the previous meeting. Stephen Milan, recently appointed to the Fed’s board, voted for a 0.50% cut again, while Jeffrey Schmidt opted to maintain the current rates.
In a September interim employment report from the Chicago Fed, the unemployment rate stood at approximately 4.3%, marking the highest level in four years. On Tuesday, the Conference Board’s Expectations Index continued to signal potential recessionary conditions.
The Fed seems more concerned about the overall economic situation than inflation, which stubbornly exceeds the bank’s 2% annual target. The consumer price index saw a rise of 3% in the year leading up to September, following a 2.3% increase in April, according to the Bureau of Labor Statistics.
Meanwhile, Chairman Powell mentioned in a post-decision press conference that the bank will finish reducing its total securities holdings. Banks are currently unloading assets after previously strengthening their holdings of U.S. Treasuries and mortgage-backed securities during more turbulent economic times.
Some analysts suggested that a shift toward a more accommodating monetary policy, paired with lower interest rates adding liquidity to the market, might benefit Bitcoin and other higher-risk assets.
Last month, the Fed cut the federal funds rate by 0.25%, marking the first reduction since the previous year. This hesitation has drawn criticism from U.S. President Donald Trump, who has vocally opposed Powell and even threatened to dismiss him amid concerns over a potential economic downturn.
O’Shea from Hashdex expressed optimism that while digital asset markets may remain volatile, the growing demand for ETFs and a more favorable regulatory landscape in the U.S. might support the idea that Bitcoin could surpass its all-time highs later this year.
