Bitcoin experienced a notable surge of $500, and Ethereum climbed above $3,400 shortly before a significant interest rate announcement. Market participants widely anticipated a 25 basis point reduction, with analysts from JP Morgan foreseeing both a rate cut and a subsequent dip in inflation. However, this interest rate adjustment is part of a larger and more complex economic picture.
Federal Reserve's Decision on Interest Rates
As widely predicted, the Federal Reserve officially declared a 25 basis point reduction in interest rates. This move was eagerly awaited by investors who were closely monitoring Chairman Powell's subsequent comments. The economic outlook and future monetary policy strategies were also unveiled during the announcement. Observers followed the live address for detailed insights.
Details on Treasury Purchases
The Federal Reserve plans to commence treasury bond purchases totaling $40 billion within the upcoming month. This initiative is scheduled to begin on December 12th, notwithstanding opposition from certain members, specifically Schmid and Goolsbee. Unemployment rate projections have been revised, with forecasts indicating 4.5% for 2025 and 4.4% for 2026.
Long-term interest rate projections are currently set at 3.1% by the year 2028. Some Federal Reserve officials anticipate a substantial reduction in rates, potentially amounting to two quarter-point cuts by 2026. Conversely, several members believe that no rate reduction will occur in that same year. In parallel, the unemployment rate saw a slight increase in September, which prompted the Federal Reserve to lift operational restrictions on overnight repo activities. This action signals an anticipated increase in treasury bond purchasing over the ensuing months.
The pace of long-term treasury purchases is expected to decelerate considerably. An evaluation of both the risks and uncertainties associated with the current economic climate suggests that downside risks in the employment sector are on the rise. Inflation, meanwhile, has remained steady at elevated levels since the beginning of the year.
The overall economic climate is characterized by a moderately paced and steady expansion, though there has been a modest uptick in joblessness.
The policy decision received a favorable vote of 9-3; Miran supported a half-point reduction, while Goolsbee and Schmid preferred no decrease," stated the Federal Reserve.
Key highlights and projections emerging from the Federal Reserve's recent announcement include:
- •Treasury purchases are set at $40 billion, scheduled to commence next month.
- •Interest rates are projected to reach 3.1% by the close of 2028.
- •Unemployment predictions stand at 4.5% for 2025, with slight improvements anticipated in subsequent years.
- •Inflation has persisted at elevated levels since the initial part of the year.
Analysts from JP Morgan noted the presence of hawkish elements within the Federal Reserve's economic outlook, observing, "Powell’s upcoming comments could significantly sway market expectations, with limited prospects for cuts in 2026." Chairman Powell's statements are expected to play a crucial role in shaping economic sentiment and influencing the future trajectory of cryptocurrencies.