Everything You Need to Know About The Feds Plan for Rate Cuts

• Bitcoin and other cryptocurrency prices dipped after the Federal Reserve signaled one rate cut ahead in 2024, despite keeping interest rates unchanged.
• The Fed’s updated projections showed policymakers now expect one rate cut could be appropriate, interpreted as a more hawkish stance than previously anticipated.
• While inflation has come down substantially, Fed Chair Jerome Powell affirmed the central bank’s fight against inflation is not over yet.

The prices of Bitcoin and other leading cryptocurrencies wavered Wednesday as investors parsed commentary from the Federal Reserve that provided new insight into the US central bank’s fight against inflation.

Fed Keeps Interest Rates Unchanged

Policymakers’ move to leave interest rates unchanged for an 11th consecutive month was a foregone conclusion based on movements in Fed futures markets. At its most restrictive position in over 20 years, the Fed kept its benchmark borrowing rate at a range between 5.25% and 5.50%.

This month’s release of a so-called dot plot, however, suggested shot callers at the US central bank have seen a notable shift in financial conditions since March. The Fed in its most recent Summary of Economic Projections had penciled in three rate cuts through year’s end.

The dot plot released Wednesday suggested Fed policymakers now think one rate cut could be more appropriate—interpreted by the market as a hawkish sign. The projection went beyond the two rate cuts that economists had expected the Fed could telegraph as it looks to keep rates higher for longer in the face of a strong economy and US labor market.

Bitcoin, Ethereum Prices Initially Pop

The prices of Bitcoin and other leading cryptocurrencies popped Wednesday after a widely watched inflation gauge showed that US consumer prices increased last month by less than economists had expected. The Consumer Price Index (CPI) rose 3.3% in the 12 months through May, the US Bureau of Labor Statistics said Wednesday, coming in slightly below economists’ forecast of 3.4%.

Previously, the index tracking American goods and services showed that consumer prices rose 3.4% annually. Immediately following the report, cryptocurrency prices had risen on news that inflation had slowed to 3.3% in the 12 months through May. The report indicated that consumer prices for American goods and services rose slightly less last month than economists had expected.

Prices Fall After Fed Announcement

Following the Fed’s announcement, Bitcoin and other cryptocurrencies fell. Just 15 minutes after the Fed’s move for example, Bitcoin’s price swiftly fell 1.2% to around $69,000 from $69,900. Meanwhile, the prices of Ethereum and Solana also ticked down at similar rates.

Fed Remains Focused on Inflation Fight

The Fed has maintained in recent months that it will not cut rates until it has gained greater confidence that inflation is moving sustainably toward 2%. Federal Reserve Chairman Jerome Powell affirmed that stance on Wednesday and said “So far this year, the data have not given us that greater confidence.”

Recent indicators suggest that economic activity has continued to expand at a solid pace, Powell added in a statement. In recent months, there has been modest further progress toward the Committee’s 2% inflation objective, he said.

Powell pointed to Wednesday’s Consumer Price Index report, where inflation was flat on a month-to-month basis in May, as a sign of potential progress. “Let me say that we welcome today’s reading and hope for more like that,” he said.

“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” Powell added, of which one is maximum employment among US workers.

Conclusion

The price of so-called risk assets, including stocks and crypto, typically face pressure as interest rates rise and the payouts on holding cash and US Treasuries become more attractive. Investors anticipate the opposite would happen as the Fed loosens US monetary conditions.

Before the conclusion of the Fed’s policy meeting, futures traders penciled in a 61% chance that the Fed cuts rates in September, likely delivering a boost to the US economy through lower borrowing rates. That figure fell to 59% following the release of Powell’s written remarks.

Not long before US inflation peaked at 9.1% in June 2022, the Fed began lifting interest rates from near-zero to cool a red-hot economy. While inflation has come down significantly since then, Powell affirmed Wednesday that the US central bank’s quest to 2% isn’t over yet.