The Federal Reserve has made a significant monetary policy adjustment by reducing interest rates by a quarter percentage point, setting the upper limit of its federal funds rate to 4.25%. This change marks the lowest rate since November 2022, aligning with market expectations following trends of diminishing labor data and softer inflation readings.
The decision, supported by Chair Jerome Powell and the majority of the members of the Federal Open Market Committee (FOMC), indicates a shift in focus towards coping with slowing economic growth, subdued job growth, and rising concerns regarding employment stability. Notably, one committee member, Stephen I. Miran, expressed dissent, advocating for a more aggressive half-point reduction.
The FOMC highlighted the ongoing struggles in the labor market, noting that recent revisions showed a substantial decrease in job creation, with 911,000 fewer jobs reported for the year up to March than initially documented. The August employment report illustrated stagnation in job growth, and the unemployment rate rose to 4.3%—the highest level since 2021. Powell has previously cautioned about potential “downside risks” in the labor market, especially if layoffs continue to rise.
Inflation, though easing compared to earlier in the year, remains above the Fed’s 2% target. August data revealed an unexpected decline in wholesale inflation, with the Producer Price Index (PPI) slipping 0.1% after a 0.7% increase in July. The annual PPI increase came in at 2.6%, significantly lower than economist forecasts of 3.3%, further substantiating predictions of an impending rate cut.
Political pressure has also played a role in the Fed’s deliberations. Former President Donald Trump has consistently called for more substantial cuts, criticizing Powell’s cautious approach while urging action to support housing and mitigate government borrowing costs. Miran, a Trump appointee, aligned with the push for larger reductions during the decision process.
This rate cut unfolds amidst concerns over tariffs that have affected inflation rates. Consumer prices rose to 2.9% in August, following a dip to 2.3% in April, leaving economists divided about the stability of these tariff-driven increases. The combination of climbing prices and rising unemployment raises the specter of stagflation, which the Fed aims to navigate carefully to maintain a balance between growth and price stability.
Despite the turbulent political backdrop, Fed officials have signaled expectations of slightly faster economic growth while keeping unemployment and inflation forecasts stable. Their long-term projections hint at a gradual approach toward a neutral rate, estimated at around 3%, suggesting further rate cuts may follow in 2026 and 2027.
The ripple effects of these monetary decisions are particularly relevant for the cryptocurrency market. Historically, Bitcoin and Ether have responded favorably to indications of looser monetary policy. However, ongoing political tensions and enduring inflation risks could temper these potential gains. Investors are keenly anticipating Powell’s subsequent press conference to gain further insight into the Fed’s forthcoming strategies.
Following Powell’s press conference, significant volatility struck the crypto markets, with over $105 million liquidated within an hour. Long positions accounted for $88.8 million of this liquidation, contributing to a slight decline in the global crypto market cap to $4.08 trillion. Bitcoin saw a 1.2% decrease in the past 24 hours, trading around $115,089 and remaining 7% below its record high of $124,128.
Earlier in the day, Bitcoin had peaked at over $117,000, its highest point in four weeks, before the comments from Powell instigated market jitters. Analysts noted critical liquidity levels between $108,000 and $112,000, which could pose a risk of deeper corrections should market sentiment shift negatively.
Despite a strong performance in September, with Bitcoin up 8%, marking its best September since 2012, traders are closely monitoring key support levels, particularly $115,800. Technical analysts have identified a rising wedge pattern, indicating potential bearish reversals, with downside targets at $114,400 and $113,200 if those supports fail.
The market stands at a pivotal point. Powell’s commentary has cast a shadow over risk assets, leaving traders to navigate uncertainties as Bitcoin endeavors to maintain crucial support levels amid potential for further retracement.
