The Federal Open Market Committee (FOMC) delivered a widely anticipated decision today, maintaining the benchmark federal funds rate at 5.25-5.50%. This move aligns with market expectations and signals the Fed’s continued commitment to combating inflation despite earlier hopes for rate cuts.
Inflation Concerns Stall Rate Cuts
While Bitcoin witnessed a modest price increase following the announcement, it remains under pressure due to the FOMC’s acknowledgment of stalled progress on inflation reduction. The committee emphasized that rate cuts won’t be considered until they have greater confidence inflation is moving steadily towards the 2% target.
In addition to the rate news, the FOMC announced a slowdown in the quantitative tightening (QT) program, reducing the pace of Treasury reduction from $60 billion to $25 billion per month. Economist Joseph Brusuelas suggests this move could potentially stimulate risk appetite and boost asset prices, including Bitcoin.
Market Expectations Realigned: Dampened Sentiment Across the Board
Earlier this year, markets anticipated a series of rate cuts from the Fed. However, strong economic data and persistent inflation have significantly revised those expectations. This shift has impacted traditional markets, with the Nasdaq and S&P 500 experiencing notable declines since their respective highs in March.
Bitcoin Feels the Heat: Crypto Market Under Pressure
The revised rate cut outlook has also likely contributed to Bitcoin’s price plunge, which currently sits over 20% below its mid-March record high. While the immediate post-announcement reaction saw a slight Bitcoin bounce, the overall crypto market remains under pressure.
Related: Interest Rates vs. Crypto: How Fed Interest Rates Impact Cryptocurrencies
Markets reacted with relative calmness to the Fed’s decision, with stocks showing minimal change. The dollar and bond yields experienced slight dips, while gold saw a modest increase.
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