The Federal Reserve announced on Wednesday that it will lower its benchmark interest rate by 50 basis points, marking the central bank’s first cut since the start of the COVID-19 pandemic.
Federal Reserve's Decision
The Federal Reserve announced on Wednesday the lowering of its benchmark interest rate by 50 basis points. The central bank stated that it has gained “greater confidence” that inflation is heading back down to 2%, even though it remains somewhat elevated. The Fed also mentioned that job gains have slowed, and the unemployment rate has moved up but remains low.
Financial Market Reaction
Immediately after the announcement, Bitcoin’s price rocketed back above $60,000, while the S&P500 shot up by 0.7%. Hours before the announcement, interest rate traders priced in the odds of a 50 basis point cut at 65%, versus 35% odds for a 25 point cut. Meanwhile, crypto bettors on Polymarket had the odds at 43% for 50 basis points, and 57% for 25 basis points.
Implications for Investors
Lower rates are generally seen as bullish for Bitcoin since it allows investors to borrow money more cheaply to buy risk assets. It also increases the money supply, which is generally bullish for scarce assets like gold or BTC. However, former Fed Vice Chair Richard Clarida warned last week that a non-standard 50 basis point cut could spook the market into thinking something is wrong.
The Federal Reserve's rate cut had an immediate impact on both the cryptocurrency and traditional financial markets. Continued observation of the Federal Reserve's actions and their influence on the economy remains important for all market participants.
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