In September 2024, the Federal Reserve announced its first rate cut since March 2020, ending a four-year period of high interest rates. The 25-basis-point cut lowered the federal funds rate to a target range of 5.25%-5.5%. What are the implications for the economy and the cryptocurrency market?

Reasons for the Rate Cut

Rate cuts are a key tool used by central banks to adjust market liquidity and economic activity. The logic is to stimulate consumption and investment by lowering borrowing costs, driving economic growth. Under high interest rates, economic activity is usually suppressed as borrowing costs increase, leading to reduced spending and investment by both businesses and consumers.

Impact on Economy and Real Estate Market

The cost of borrowing for banks decreases, enabling commercial banks to offer loans to businesses and individuals at lower rates, thus increasing market liquidity. With declining savings rates, investors move capital to higher-yielding assets, particularly stocks and real estate. Lower mortgage rates stimulate housing demand, driving up real estate prices.

Impact on the Crypto Market

Following the Federal Reserve’s rate cut, the crypto market experienced notable fluctuations. The U.S. Dollar Index declined, increasing market liquidity and boosting risk appetite. Mainstream cryptocurrencies like Bitcoin and Ethereum saw price increases. Concerns over potential dollar depreciation prompted investors to view Bitcoin as a hedge.

The Fed’s rate cut in September 2024 marks a new direction in global monetary policy. After the rate cut, capital generally flows to stock and real estate markets, boosting consumption and investment demand, and thus promoting economic recovery. Volatility and risks, such as inflation or asset bubbles, may arise. Investors must understand the rate cut logic to assess asset risks and returns and make informed decisions.