Key Takeaways:
The Federal Reserve has reduced the key interest rate by 25 basis points, a decision designed to effectively navigate the slowing labor market and decrease inflation rates in the United States.
Thursday’s rate cuts have brought the benchmark rate to between 4.50% and 4.75% and is consistent with Fed chairman Jerome Powell’s plans to gradually reduce the rates over coming months. The central bank cut interest rates by 50 BPS in September, which proved to be a highly bullish signal for the crypto industry.
Bitcoin Comes Ever Close to $77,000 After Fed Announced Fresh Rate Cuts
Bitcoin, the price of which had already reached a new all-time high following Donald Trump’s election victory, was the biggest benefactor of the rate cut. As soon as the Fed announced its decision, BTC made a move to record yet another new all-time high at $76,800.
After the Federal Open Market Committee (FOMC) meeting, Powell held a press conference where he stated that he feels good about the economic activity so far. He noted that if the US economy remains strong and inflation is not moving toward 2%, then the Federal Reserve can “dial back policy restraint more slowly”.
Most importantly, he said that if the labor market were to weaken “unexpectedly”, or inflation was to fall more quickly than anticipated, then the Fed could move in “more quickly”.
Historically, the crypto market has been in the green whenever the Federal Reserve decides to lower interest rates. The prices of major cryptocurrencies have reacted positively to low interest rate environments, because whenever the Fed cuts rates, investors tend to go for risky assets like BTC and stocks, resulting in their prices surging.
Crypto Market Reacts Positively to Fed’s 25 BPS Rate Cut
Other leading cryptocurrencies also rallied alongside Bitcoin on Thursday as the market continued its uptrend. Ether (ETH), the world’s second-largest cryptocurrency by market cap, witnessed a 7.3% rise, while Solana (SOL) posted gains of 3.5% following the announcement.
The memecoin market also recorded a 15% gain yesterday, while the DeFi and AI token sectors soared 18% and 13.5%, respectively.
The crypto community reacted with absolute jubilation to the Fed’s rate cuts. ‘Crypto Rover’, founder of the analytics platform CryptoSea, claimed that the previous rate cut trends alone could take Bitcoin to a $100,000 valuation.
However, back in September after the Fed reduced rates by 50 BPS, analysts warned that perceived market instability could harm risk-on assets like Bitcoin. Liquidity provider and asset exchange Darkex Global theorized that Trump’s victory might dampen future rate cuts, possibly creating instability.
The Fed has made it clear that its decision was not influenced by the current political climate. Jerome Powell emphasized his long-term plan of reducing inflation in the US and keeping employment numbers high, indicating that if the current trajectory of slow rate cuts is working as expected, then Trump’s victory will not hinder it.
At the time of writing, Bitcoin (BTC) is trading at $76,119 – up 1.64% in the last 24 hours.
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