The U.S. Federal Reserve made waves on Wednesday by cutting its benchmark federal funds rate by 50 basis points, lowering it to a range of 4.75% to 5%. This marks the first rate cut in four years, following an intense period of rate hikes aimed at taming inflation.
In its official statement, the Federal Open Market Committee (FOMC) expressed greater confidence that inflation is on a sustainable path toward the Fed’s 2% target. “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the statement read. Despite the optimism, the Fed acknowledged the continued uncertainty in the economic outlook and reiterated its focus on both sides of its dual mandate—maximum employment and stable prices.
Looking ahead, Fed officials forecast further cuts, expecting the median benchmark rate to drop to 4.4% by the end of the year. This implies another 50 basis points of reductions across the next two FOMC meetings, a noticeable shift from the one cut that was predicted back in June.
Fed Chair Jerome Powell, during the post-meeting press conference, expressed optimism about the current state of the U.S. economy. “The U.S. economy is in a good place, and our decision today is designed to keep it there,” Powell said. He added that an unemployment rate in the low 4% range signals a healthy labor market, and there is no immediate indication that the risk of recession has increased. However, Powell cautioned against assuming that future rate cuts would follow the same aggressive pace, emphasizing the Fed’s data-driven approach to monetary policy.
The markets reacted swiftly. Bitcoin surged by 1.2%, briefly touching $61,000 before falling below $60,000, leaving it mostly flat over the last 24 hours. U.S. equities also took a hit, with the tech-heavy Nasdaq 100 and the S&P 500 both ending the session 0.3% lower. Gold initially spiked to a record high above $2,600 but later retraced to close in negative territory. Meanwhile, the U.S. dollar index (DXY) dropped to 100.3, its lowest level since July 2023, before bouncing back to 101. As CoinDesk analyst James Van Straten pointed out, the DXY remains a crucial indicator for assessing risk asset prices.
Cryptocurrency-related stocks experienced similar volatility. MicroStrategy (MSTR) shares rose 1.5% during the day, but crypto exchange Coinbase (COIN) and investment firm Galaxy (GLXY) ended mostly flat or slightly negative. Bitcoin miners, including Marathon Digital (MARA) and Riot Platform (RIOT), followed a similar trajectory, giving up their earlier gains.
“The Fed has given the market what it was looking for with the bigger 50-basis point rate cut,” said Joel Kruger, market strategist at LMAX Group. However, Kruger expressed concerns about the market’s ability to continue rallying on future Fed moves now that such significant accommodation has been priced in.
Expectations for this rate cut were high. During the Jackson Hole symposium last month, Chairman Powell hinted at a shift in policy as inflation cooled and unemployment began to rise. However, traders were divided on whether the Fed would opt for a smaller 25 bps cut or the larger 50 bps move. Prior to Wednesday’s decision, market pricing via the CME FedWatch Tool indicated a 60% probability of a larger cut.
This uncertainty fueled volatility across markets. Crypto market maker Wintermute predicted 2% to 3% price swings for bitcoin, depending on the outcome of the Fed’s decision.
Arthur Hayes, co-founder of BitMEX and CIO of Maelstrom, shared his concerns that the Fed’s aggressive rate cuts might backfire. In an interview with CoinDesk, Hayes warned that narrowing interest rate differentials between the U.S. dollar and the Japanese yen could prompt a massive unwind of yen-based carry trades, which could send shockwaves across global markets. A similar dynamic led to the August 5 crash that saw stocks and digital assets, including bitcoin, briefly dip below $50,000.
As the dust settles, investors remain cautious. While the Fed’s bold move brings hope of economic stability, the potential ripple effects—especially in cryptocurrency and risk assets—underscore the complexity of today’s global markets.
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