The U. S. Federal Reserve cut its benchmark federal budget rate by 25 basis points to the range of 4. 25% to 4. 50%, its third consecutive easing measure this year and now totaling 100 points. basis for rate cuts from September.
Market participants fully expected the central bank’s resolution on Wednesday, but recent insights have shown a forging economic expansion and sustained inflation. Today’s focus was the monetary policy statement, updated economic projections, and the upcoming press conference with Chairman Jerome Powell for clues on the Fed’s thinking on long-term policy actions.
The Fed’s quarterly economic projections — which include the “dot plot” indicating where the central bank expects the Fed funds rate to land over time — reveal that policymakers expect the Fed funds rate to decline to 3.9% by year-end 2025 or another 50 basis points in rate cuts next year. That’s higher than the 3.4% projected in September, signaling a less dovish monetary policy in 2025. Fed members’ projections for Personal Consumption Expenditures (PCE) and core PCE inflation for next year rose to 2.5% from September’s forecast of 2.1% and 2.2%, respectively.
Already lower in the session, the price of bitcoin (BTC) turned lower from $104,000 following the announcement, dipping to around $101,000 as Fed Chair Jerome Powell’s spoke to the press, down nearly 5% over the past 24 hours. Smaller cryptos tumbled even more, with XRP, Cardano’s ADA, Litecoin’s LTC nearly 10% down. The S&P 500 index also fell to a session low on Wednesday.
During the press conference following the FOMC decision, Fed Chair Jerome Powell said that the projected slower path of further rate cuts is a reflection of hotter inflation readings in previous months and higher inflation expectations for next year.
“We are closer to the neutral exchange rate, which explains the reason for more moves,” Powell added.
Powell, responding to a reporter’s question about the government’s concept of building a strategic bitcoin reserve under President Donald Trump, said the Fed “is not permitted to own bitcoin” under the Federal Reserve Act and is not seeking replace the law.
“I think the biggest headache for the Fed right now is the fact that financial conditions have still tightened despite the Fed cutting rates,” Andre Dragosch, European Head of Research at Bitwise, told CoinDesk prior to today’s action. “Long bond yields and mortgage rates have increased since September and the dollar has appreciated which also implies a tightening in financial conditions.”
“The continued appreciation of the US dollar also represents a macroeconomic threat to bitcoin, as the appreciation of the dollar is also related to the contraction of the global cash supply, which tends to be bad for bitcoin and other crypto assets,” Dragosch continued. The Federal Reserve’s net liquidity continues to decline. Low liquidity and strong dollar are also, in my opinion, the biggest threat to BTC. . . On the other hand, the on-chain points for BTC remain very favorable, specifically the continued decline in the exchange rate. balances which supports speculation that the BTC supply shortfall continues to intensify.
UPDATE (December 18, 20:23 UTC): Updates worth noting after Fed Chair Jerome Powell’s press conference.