The Federal Reserve just made a move that got everyone talking, cutting its benchmark federal funds rate by 25 basis points. This puts the rate between 4% and 4.25%. FED Chair Jerome Powell called this a “risk management cut,” a cautious step to handle current economic challenges. Most members of the Federal Open Market Committee (FOMC) backed this decision, showing strong internal agreement despite outside pressures.
Powell spoke after the announcement, explaining the FED’s reasoning. He pointed out that risks to the economy now look “very different.” The job market, which was once “solid” back in July, has started to cool down. Gross Domestic Product (GDP) growth has slowed, and the labor market has softened since April. This means the worry about high, lasting inflation has lessened. Instead, the FED is now focusing more on protecting jobs. Powell noted that inflation risks are slightly higher, but employment risks are lower, a tough spot for policymakers.
The FED had kept interest rates steady since December 2024. This was despite former President Donald Trump pushing for cuts. Inflation had stayed above the FED’s target of 2% annually. Powell had also voiced concerns that Trump’s tariffs could push prices higher, suggesting a “wait and see” approach from the FED. Today, he mentioned that companies importing goods have mostly absorbed these tariffs. So far, they haven’t seriously hit consumers. Still, future changes in taxes, trade, and immigration could shift the balance of risks for inflation and jobs.
Future Outlook: More Cuts Ahead
Looking ahead, the FOMC members updated their forecasts. They now see two more rate cuts happening before the end of 2025, likely in October and December. This is an increase from their June projections, which only predicted two cuts for the entire year. However, it’s still fewer than the market’s expectation of up to five cuts in 2025-2026. For 2026, officials project just one more cut. The outlook for unemployment and inflation this year remains unchanged from June. This suggests the FED believes the economy is in a decent spot, but it’s not bulletproof. Powell stressed that the FED will move “carefully.” They will keep watching new data, especially on jobs and prices. He added that “the economy of the future remains in the air,” meaning there’s no fixed plan.
The FED’s Stance Amidst Political Noise
Former President Trump has often called for rate cuts since January and has even hinted at firing Powell. On Truth Social, he recently wrote that the FED should cut rates “more than [Powell] had in mind.” Trump also tried to remove Governor Lisa Cook, sparking fears about the central bank’s independence. During his remarks, Powell indirectly addressed these political tensions. He made it clear that the FED is independent. He underlined its commitment to its main goals: ensuring maximum employment and stable prices, regardless of outside pressure for quicker cuts.
Crypto Market’s Muted Response
Generally, lower interest rates make traditional investments less appealing. This often pushes investors toward riskier assets like cryptocurrencies. Many analysts expected today’s rate cut to pump more cash into markets, leading to higher trading volumes for assets like Bitcoin and Ether. However, the crypto market barely moved after the news. Bitcoin (BTC) had briefly touched four-week highs above $117,000 earlier in the morning. But it quickly fell back below $115,500 after the FED’s decision. Other major cryptocurrencies showed little change too. Ether (ETH) traded with a small gain of 0.6% at $4,530 at the time of this writing, according to CoinGecko.
Analysts generally think the crypto market could pick up in the last quarter of the year. September is usually a down month, often marked by big economic shifts. But October is historically a bullish month, which could set the stage for a rally. Right now, BTC trades around $116,000, down 0.7% in 24 hours. This is a 6.5% drop from its high of $124,000 last month. Despite the recent dip, firms like Bitwise and Standard Chartered still predict Bitcoin could blast past $200,000 before 2025 ends.
Sources:
- CNBC
- Reuters
- CNN
- CoinGecko
- Bitwise
- Standard Chartered