50 Points Rate Cut by the US Federal Reserve!
It’s official: the US Federal Reserve, better known as the Fed, has cut the interest rate by 50 basis points (bps). Following this announcement, we had a press conference with Chairman Jerome Powell. Let’s dive into this very important decision.
Decision and Statement
The 50 bps cut came as a bit of a surprise, as many people were expecting a 25 bps cut. However, the most important aspect is not the size of the cut but the reasoning behind this decision. The market is concerned that such a large cut could signal an economic slowdown, potentially leading to a recession.
The Fed’s statement, however, says the opposite :
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.”
This is very good news for high-risk assets like crypto in the long run, which was further acknowledged by Mr. Powell during the press conference. He emphasized that the economy remains strong.
Economists have also made predictions regarding the economy and federal funds rates, projecting that rates will be around 3% by 2025, with inflation close to 2%.
Market Impact
However, the most important aspect is how investors react to this news.
The initial reaction was quite mixed. At first, there was a market rally, followed by a correction. This shows volatility and uncertainty in the market.
Many investors don’t fully understand the reasoning behind such a drastic cut by the Fed, and there are numerous social media posts referencing the past, highlighting that recessions often follow a 50 bps cut :
But we cannot compare today’s situation with past events. The current economic indicators for the US are positive. Additionally, the Fed had the opportunity to begin cutting rates in July but chose not to out of caution.
Thus, today’s 50 bps cut could be seen as a way to accelerate the rate-cutting process to make up for the decision in July.
Overall, I believe this decision is highly beneficial for cryptocurrencies!
As always, thank you for reading!
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Disclaimer: This is not financial advice, you need to do your own research!
