As expected, the Federal Reserve has cut interest rates for the first time this year, opting for a reduction of 25 basis points.
Initially, the response across stocks and cryptocurrencies was pretty muted to say the least — unsurprising considering the move was largely priced in.
But something interesting was happening as we headed into the early hours of Thursday. Futures in both the S&P 500 and the tech-heavy Nasdaq were on the rise. And while Bitcoin briefly sank below $115,000 as Fed chair Jerome Powell gave a news conference, it raced toward $118,000 in the hours that followed.
So… what’s going on? What happens next? What does it mean for your crypto wallet? Let’s unpack Wednesday’s events.
By the looks of things, the Fed is expecting to cut interest rates two more times by the end of 2025. But Powell made one thing clear: he remains cautious.
Speaking to reporters, he predicted that decisions on future reductions will be made on a “meeting by meeting basis” — with the Federal Open Markets Committee paying close attention to labor market figures and inflation.
The chairman admitted that it’s difficult to assess the full impact that Donald Trump’s tariffs are having on the cost of living and the wider economy too, amid concerns that inflation could remain above the Fed’s 2% target for longer.
Data released from the Fed shows the verdict to cut rates was almost unanimous from members of the FOMC, with one exception: Trump’s new appointee, Stephen Miran. He was in favor of a much more drastic reduction in the cost of borrowing — mirroring repeated calls from the president for considerably lower rates.
Trump isn’t in the U.S. at the moment, he’s currently on a second state visit to Britain. He has posted on Truth Social since the Fed’s decision emerged — but not about this, instead focusing on Jimmy Kimmel being pulled off the air. Nonetheless, it doesn’t take a rocket scientist to figure out what he’ll think of all this, considering his continual references to “Too Late” Jerome Powell.
Weirdly, both Powell and Trump are aligned on one thing: this cut won’t make too much of a material difference to the economy. But there are fears that the Fed’s move is evidence of increasing political interference from the White House — and if that was true, that could freak the markets out.
Max Gokham is deputy chief investment officer at Franklin Templeton Investment Solutions — and has an interesting take on how the economic climate could influence the crypto markets going forward. He told Cryptonews:
“The same policies stoking inflation and weakening Treasuries are also laying the groundwork for a digital asset renaissance. Tokens like XRP and SOL may see greater cross-border adoption as new payment rails.”
Indeed, looking at the current picture, it’s smaller cryptocurrencies that have witnessed the biggest surge over the past 24 hours. While BTC’s ticked up by just 0.77% at the time of writing — basically flat — ETH and XRP have risen by 2.6% apiece, with Solana jumping by 5%.
Some analysts believe that further Fed rate cuts will be an essential catalyst to drive the markets higher in the months ahead, with every subsequent reduction serving as a shot in the arm for riskier assets.
Ahead of Powell’s conference, there was a pretty interesting installation on the streets of Washington DC: a gold statue of Donald Trump holding a Bitcoin. The crypto investors behind the stunt said they hoped it would “ignite a conversation about the future of government-issued currency.”
Across the other side of the pond, it’s worth having a quick look at the Bank of England, which is also making an interest rate decision on Thursday.
These announcements don’t tend to have as much of an impact on Bitcoin as the Fed’s, but analysts in London are widely expecting that the cost of borrowing here will remain unchanged. A big factor here lies in stubbornly high inflation, which remained unmoved at 3.8% in August.
The Federal Open Markets Committee will next meet at the end of October, with data from the CME FedWatch tool suggesting there’s currently an 87.7% probability of another 25 basis point reduction then. It’ll be interesting to see how these odds evolve over the coming six weeks.
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