The US Federal Reserve cut interest rates yesterday, and shortly afterwards the Bitcoin price plummeted to 98,000 USD. What happened? And why did the market react so negatively to the US Federal Reserve’s interest rate decision? After all, interest rate cuts are considered positive for the market.
BREAKING: The S&P 500 falls sharply after the Fed cuts rates by 25 basis points, but raises inflation forecast.
The Fed reduced their outlook from 3 to 2 rate cuts in 2025 and raised inflation expectations from 2.1% to 2.5%.
Inflation is back. pic.twitter.com/kKtEHD0IF0
— The Kobeissi Letter (@KobeissiLetter) December 18, 2024
Why did the Bitcoin price fall after the interest rate decision?
The decline in BTC price following the US Federal Reserve’s interest rate cut is closely related to market expectations.
In addition to the interest rate cut, the US Federal Reserve also announced its forecasts for 2025. These forecasts showed that the central bank only plans to cut interest rates twice in the coming year.
Apparently, the market was expecting more and was not prepared for a tough stance from the US Federal Reserve. However, from a macroeconomic perspective, the situation remains stable.
The problem is that the price had anticipated events somewhat. However, this does not necessarily mean the end of the bull market. Such days are also part of a bull market and can help correct market sentiment.
Inflation returns
Inflation has risen again over the past three months, but until yesterday the US Federal Reserve seemed unimpressed.
Now, however, it seems to acknowledge that inflation could once again become a problem. This was a painful turn for the market, as not only did Bitcoin fall sharply, but stock markets also suffered massive losses.
Following yesterday’s interest rate cut, an interest rate pause is now likely until at least March 2024 or later. This means that interest rates will remain unchanged until then and no further action is expected from the US Federal Reserve.
This pause will give the economy a chance to adjust to the higher interest rate level, as market interest rates remain relatively high compared to the last decade. This could cause economic growth to slow and inflation to decline, creating more room for future interest rate cuts.
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