TLDR
- Federal Reserve cut interest rates by 25 basis points to 4%-4.25% range
- FOMC members split on additional rate cuts in 2025 (10 members favor two or more cuts, 9 favor fewer or none)
- Powell emphasized viewing economic projections through “lens of probability” rather than certainty
- Approximately $7.2-7.5 trillion remains in money market funds that could flow to equities and crypto as yields fall
- Bitcoin predicted for Q4 rally with 62% of Polymarket traders projecting $130,000 price in 2025
The Federal Reserve has implemented its first interest rate cut of 2025, lowering rates by 25 basis points to a range of 4%-4.25%. However, Federal Reserve Chair Jerome Powell revealed that the Federal Open Market Committee (FOMC) remains divided on the path forward for additional rate cuts this year.
During Wednesday’s press conference following the rate decision, Powell explained that the central bank faces challenges in balancing its dual mandate of maximum employment and price stability. This balancing act has become more complex as the labor market shows signs of weakening while inflation remains higher than the Fed’s target.
“You will have seen that we have 10 participants out of 19 who wrote down two or more cuts for the remainder of the year, and nine who wrote down fewer than that. In fact, in a good number of cases, no more cuts,” Powell stated during the press conference.
The Fed Chair emphasized that the committee is approaching interest rate decisions on a meeting-by-meeting basis rather than committing to a predetermined path. This cautious approach reflects the uncertain economic environment the Fed is navigating.
According to the Federal Reserve’s Summary of Economic Projections (SEP), the median projection shows interest rates at 3.6% by the end of 2025, decreasing to 3.4% by the end of 2026, and further dropping to 3.1% by the end of 2027. These projections serve as guidance for markets but are not set in stone.
Impact on Crypto Markets
The interest rate cut has drawn attention from cryptocurrency investors who see rate reductions as a potential catalyst for price appreciation. Lower interest rates typically encourage investors to move capital from low-risk, interest-bearing investments toward higher-risk assets like cryptocurrencies.
Matt Mena, crypto research strategist at exchange-traded product provider 21Shares, highlighted the potential flow of capital from money market funds to alternative investments. “Roughly $7.2 trillion-$7.5 trillion remain parked in money market funds whose yields will now begin to fall, creating a powerful incentive for capital to move back into equities and alternatives like crypto,” Mena noted.
This shift in capital allocation could provide substantial support for cryptocurrency prices in the coming months. Bitcoin, in particular, has been identified as potentially benefiting from this changing monetary environment.
The leading cryptocurrency has already shown strength in 2025, reaching previous all-time highs. According to data from prediction market platform Polymarket, 62% of traders expect Bitcoin to reach $130,000 this year, surpassing its current all-time high of approximately $124,000.
Market Reaction and Outlook
Powell cautioned market participants about interpreting the SEP projections too rigidly. “I would encourage people, as always, to look at the SEP through the lens of probability, and, so, there are different possible outcomes and likelihoods rather than a certainty,” he stated.
The division among FOMC members reflects broader uncertainty about the state of the economy. While some committee members see a need for further monetary easing to support employment, others remain concerned about persistent inflation pressures.
The Fed’s decision comes at a time when crypto markets are closely watching monetary policy for signals about future liquidity conditions. Historically, periods of monetary easing have coincided with bullish trends in cryptocurrency markets.
Market analysts are now watching for indicators of how the economy responds to this first rate cut of 2025. Economic data in the coming weeks, particularly inflation readings and employment figures, will likely influence the Fed’s approach to subsequent meetings.
The Fed’s rate cut is the first downward adjustment in 2025, following a period of elevated interest rates designed to combat inflation. The current range of 4%-4.25% represents a shift toward more accommodative monetary policy, though still relatively restrictive by historical standards.
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Source: https://blockonomi.com/fed-rate-cut-to-4-4-25-could-shift-7-trillion-from-money-markets-to-crypto/