Fed Cuts Interest Rate, Ends Balance Sheet Reduction

On October 30, the Federal Reserve reduced interest rates by 25 basis points to 3.75%-4.00%, aligning with market forecasts and discontinuing balance sheet reductions by December 1.

This move could signal increased risk appetite in markets, affecting assets like cryptocurrency, amid indications of economic volatility and the dissent among voting members.

Fed’s 25 Basis Point Rate Cut Analyzed

Key Developments, Impact, and Reactions

The Federal Reserve made its second consecutive rate cut and announced the end of its balance sheet reduction beginning December 1. Dissent from two members —Kansas Fed Chair Jeffrey R. Schmid favoring no change and Director Stephen I. Miran suggesting a further cut— highlights increased uncertainty within the Committee surrounding future rate decisions.

The Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent. The Committee decided to conclude the reduction of its aggregate securities holdings on December 1… — Jerome H. Powell, Chair, Federal Reserve

Crypto Market’s Cautious Optimism Amid Fed Actions

Did you know? Similar to late 2019, the Fed’s rate cuts initially led to mixed reactions in Bitcoin prices. However, as liquidity conditions evolved, Bitcoin eventually saw gains.

Bitcoin (BTC) shows varied movements following the Fed’s decision. As of October 29, BTC is priced at $111,608.14 with a market cap of $2.23 trillion and a 24-hour trading volume of $64.58 billion. Recent data indicates a 0.96% decline over the past 24 hours, a 4.41% increase over the past week, and a 4.45% decrease over the past 90 days, according to CoinMarketCap.

Coincu’s research indicates that monetary policy shifts of this nature are generally viewed positively by risk assets, including crypto markets. However, inflation expectations will continue to play a critical role in determining investment flows. The team suggests close monitoring of ongoing policy signals, particularly concerning TVL and crypto market dynamics, as they may catalyze future market trends.