Bitcoin’s price has surged to $61,000 following a significant move by the U.S. Federal Reserve to slash interest rates by 50 basis points. This marks the first interest rate cut in four years, an aggressive start to its first easing campaign.
Fed Plans Another Rate Cut by December
The U.S. Federal Reserve reduced its benchmark fed funds rate by 50 basis points to 4.75%-5% on Wednesday, the first rate cut in four years following its most aggressive hiking cycle.
The press release said, “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
Fed members anticipate the median benchmark rate to decrease to 4.4% by year-end, indicating an additional 50 bps in cuts during the next two Federal Open Market Committee (FOMC) meetings, as per the Fed’s quarterly economic projection. This is an increase from the single cut projected in June.
Apart from the emergency rate cuts during Covid, the FOMC last cut rates by half a point in 2008 during the global financial crisis. The matrix of individual officials’ projections also suggests another full percentage point in cuts by the end of 2025 and a half-point by 2026. Overall, the dot plot shows the benchmark rate decreasing by about 2 percentage points beyond Wednesday’s move.
Crypto Prices Might Face 2-3% Swing
Moments after the FOMC decision, bitcoin (BTC) surged 1.4% to $61,000 before trimming its gains. The largest cryptocurrency is down 0.15% in the past 24 hours. U.S. equities also moved higher as Nasdaq and S&P recorded gains between 0.6%-0.8%.
Cryptocurrency-related stocks rose on Wednesday following the rate cut. MicroStrategy (MSTR) increased 3.77% during the day, while shares of crypto exchange Coinbase (COIN) and investment firm Galaxy (GLXY) gained 2.1%-3%.
Markets expected easier monetary policy starting in September after Chairman Jerome Powell said last month that “the time has come for policy to adjust” due to cooling inflation and a rising unemployment rate. Traders were split on whether the Fed would cut rates by 25 bps or a larger 50 bps. Before Wednesday’s decision, the CME FedWatch Tool showed a 40% chance for a smaller cut and a 60% chance for a bigger one.
This uncertainty led to a volatile session. Crypto market maker Wintermute predicted bitcoin could swing 2%-3% in either direction after the decision.
Arthur Hayes, BitMEX co-founder, warned the Fed’s rate cuts could crash markets due to shrinking borrowing rate differences between the U.S. dollar and Japanese yen. This could lead to investors unwinding yen-based carry trades, which triggered the August 5 crash that briefly pushed BTC below $50,000.