Despite a 25-basis-point rate drop issued by the US Federal Reserve on Wednesday, cryptocurrency prices continued to decline.
Financial activity is stimulated by a lower federal funds rate, which lowers borrowing costs. An announcement of a rate drop usually raises the cost of risky assets.
But on Wednesday, neither cryptocurrencies nor stocks adhered to that plan. A possible cause? Following the announcement, Fed Chair Jerome Powell discussed the likelihood of further cuts in a speech that was more inflation-hawkish than anticipated.
Powell said, “There were very different opinions about how to move forward in December in the committee’s discussions at this meeting.” “It is not inevitable that the policy rate will be further lowered at the December meeting. Really not. The policy is not predetermined.
His remarks undermine traders’ expectations: The Federal Open Market Committee (FOMC) has a 90.5% probability of cutting the policy rate by an additional 25 basis points at its next meeting in December, according to a Tuesday estimate from the CME Group’s FedWatch tool, which follows the pricing of 30-Day Fed Funds futures. Following Powell’s remarks, that likelihood fell to about 65%.
According to CoinGecko statistics, the total value of the cryptocurrency market fell by 0.8% on Wednesday, with Bitcoin falling by 1.3%. Tracking sideways was the S&P 500.
Powell justified the FOMC’s move this week toward a more neutral policy stance in his address by claiming that downside risks to employment had grown. Although he admitted that the Trump Administration’s tariffs might affect that trend, the Fed chair also pointed out that longer-term inflation expectations are still in line with the Fed’s 2% target.
According to Powell, increased tariffs are driving up the cost of some items, which is raising inflation overall. A plausible baseline scenario is that the impacts on inflation would be comparatively transient, resulting in a single change in the level of prices. However, there is also a chance that the inflationary impacts may be more long-lasting, which is a risk that has to be evaluated and controlled. It is our responsibility to prevent a one-time price level increase from turning into a persistent inflation issue.
