Interest rates remain stable as Jerome Powell indicates no immediate plans for a reduction, leading to a decline in Bitcoin's value.
In a recent meeting, the Federal Reserve made a 25 basis points (bps) rate cut, marking the first reduction of the year. The move was anticipated, with Fed Chair Jerome Powell describing it as a risk management cut.
During his FOMC press conference, Powell indicated that the markets are pricing in a certain rate path, but he is not endorsing it. He further stated that the Fed is in a meeting-by-meeting situation, and they will be looking at the data to determine their next move.
Powell also addressed the issue of inflation, stating that it has risen recently and remains somewhat elevated. However, he noted that the risk of higher inflation is less than it was in April, when tariffs were first announced. The August CPI data showed that inflation rose to 2.9% year-on-year (YoY) last month.
Despite the slowdown in the economy, Powell no longer considers the labor market to be solid. Payroll job gains have slowed significantly and are now running below the breakeven rate. Risks to employment are tilted to the downside.
Powell signaled that while further interest rate cuts are expected in 2025, the pace and size of these cuts will be cautious and less dynamic than some market speculations suggested. The Federal Reserve has set a more hawkish tone, indicating no immediate reason to ease quickly, with about three rate cuts anticipated by the end of 2025 but with careful consideration of inflation and labor market data.
The risks to inflation are tilted to the upside, with Powell stating that the Fed will be vigilant in monitoring these developments. He also made it clear that further rate cuts this year aren't certain.
The Fed's decision and Powell's statements had an immediate impact on the Bitcoin market. As of the latest update, the Bitcoin price was hovering at around $115,500. However, the price dropped sharply during the speech, falling from around $116,000 following the rate cut decision to below $115,000.
In conclusion, while the economy is not in a bad state, it has slowed down. The Fed's decision to cut interest rates and Powell's statements indicate a cautious approach to further rate cuts, with a focus on monitoring inflation and employment data. The current situation remains challenging, as both the economy and the Bitcoin market continue to be influenced by these factors.
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