Following the Federal Reserve’s recent decision to cut interest rates, both the U.S. stock market and Bitcoin prices surged to record highs.
Fed Cuts Rates, Bitcoin Surges Past $76K
Key Highlights:
- Bitcoin reached a new all-time high after the Fed’s rate cut and reassurances from Fed Chair Jerome Powell.
- Traditional market factors, like interest rates, continue to impact Bitcoin’s price movement.
- While the Fed reduced rates, Powell hinted at a slower pace for future cuts, moderating market expectations.
On Thursday, U.S. stocks and Bitcoin hit new highs following the Fed’s decision to lower interest rates and Powell’s calming remarks at his press conference, where he dismissed any intention to step down after Trump’s election victory. Bitcoin rose to a high of $76,990 before pulling back slightly to $74,831, marking a 1.2% increase over the last 24 hours. U.S. indices also rose, with the S&P 500 and Nasdaq up 0.8% and 1.5%, respectively. Market expectations for a December rate pause fell to 28% from 33%.
Rate Cuts at Fed Meeting Boost Bitcoin to New High
The Federal Reserve lowered rates by 0.25% to a range of 4.5%-4.75%, down from September’s 0.5% cut. Powell described this as a “recalibration” rather than a pivot, noting that policy remains “restrictive.” He cited a 2.8% GDP growth in Q2 and high consumer confidence, downplaying weak employment data as temporary.
While Powell left the door open for more rate cuts, he stopped short of promising one in December. When asked if he would consider resigning under Trump’s presidency, Powell firmly said no, referencing legal protections.
Following Powell’s comments, the odds of a December rate cut jumped to 75%. U.S. Treasury yields fell, with the 10-year dropping by ten basis points to 4.33%, the U.S. dollar weakened by 0.7%, and Bitcoin climbed 1% to reach $76,990.
Many analysts remain optimistic about Bitcoin, predicting new regulatory clarity under Trump’s administration. Currently, Bitcoin is trading at $74,831 and is fueling optimism, with some speculating it could eventually reach $100K. There are even discussions about making Bitcoin a strategic U.S. reserve, a move supported by Senator Cynthia Lummis. Altcoins like Dogecoin and XRP, however, showed little reaction to the speech.
Bitcoin’s Hedge Appeal Tested by Rate Changes
Bitcoin has long been seen as a hedge against economic issues like inflation, currency devaluation, and low interest rates, a stance that held weight during its previous growth phases. However, it has shown sensitivity to traditional market factors similar to retail stocks. Higher interest rates generally discourage investment in riskier assets, including Bitcoin, making rate cuts a favorable development for the crypto market.
As the Fed started tightening policy in 2021, Bitcoin’s value fell alongside other speculative assets. The banking instability in 2023 rekindled interest in Bitcoin as rate hikes slowed, and when Treasury yields peaked in October 2023, there was renewed hope for lower rates.
This shift became clearer in September and November 2024, as Bitcoin prices rallied amid expectations of further rate cuts.
Key Points from Powell’s Address
Powell highlighted several economic pressures affecting the U.S. labor market, such as the aftermath of hurricanes and labor strikes. Although unemployment remains low, tighter labor market conditions are putting downward pressure on inflation. With inflation nearing the Fed’s target, Powell reiterated his commitment to stability but warned of a slower rate-cut pace if inflation persists while job losses rise.
Recent economic data has been robust, with the Fed’s policy remaining restrictive to help cool the labor market. While bond yields are up, they are still well below last year’s levels. The Fed is considering a more cautious pace in future cuts, though Powell confirmed he would not resign if asked.
