KEYTAKEAWAYS
- Federal Reserve keeps interest rates unchanged, signaling potential September rate cut.
- Bitcoin price rises slightly as markets react positively to Fed's decision.
CONTENT
U.S. Federal Reserve maintains benchmark interest rates at 5.25%-5.50%, citing progress towards 2% inflation target; Bitcoin price shows modest gains amid economic optimism.
The U.S. Federal Reserve’s decision to maintain current interest rates has resulted in a modest uptick in Bitcoin’s price. On Wednesday, the Federal Open Market Committee (FOMC) kept the benchmark federal funds rate between 5.25% and 5.50%, aligning with most analysts’ predictions.
In its statement, the central bank noted, “Recent indicators suggest that economic activity has continued to expand at a solid pace.” The Fed highlighted moderated job gains, a low unemployment rate despite a slight increase, and easing inflation over the past year. They emphasized “some further progress toward the Committee’s 2 percent inflation objective” in recent months.
Regarding potential rate cuts, the Fed stated they don’t expect to reduce the target range until they have “gained greater confidence that inflation is moving sustainably toward 2 percent.” The committee will also continue reducing its holdings of Treasury securities and agency debt.
Market expectations are now focused on a potential September rate cut. Charles Schwab Managing Director Richard Flynn told The Block that investors anticipate the first rate cut of this year in September. This expectation has sparked increased interest in small-cap stocks, which are more sensitive to interest rate changes.
The Chicago Mercantile Exchange (CME) FedWatch tool indicates that interest rate traders have increased the probability of a September rate cut to 89.6%. Recent U.S. economic data, showing lower price pressures in both the Consumer Price Index (CPI) and service-led inflation, supports this outlook.
Wintermute analysts noted that inflation expectations have decreased, with 1-year inflation swaps currently trading at 1.88%, below the Fed’s 2% target.
Despite the Fed’s decision to keep rates steady, major stock indices showed positive movement. During mid-day trade on Wednesday, the S&P 500 gained 1.59%, the Nasdaq Composite rose 2.49%, and the Dow was up 0.71%.
The CBOE Volatility Index (VIX) fell 8.9% to 16.11 points, indicating reduced market uncertainty. Gold prices increased by 0.6% over 24 hours to $2,423.9 per ounce.
Bitcoin, the leading cryptocurrency, traded around $66,537 at the time of publication, showing a 1.4% increase over the past day.
This modest gain in Bitcoin’s price, coupled with the positive performance of traditional markets, suggests that investors are cautiously optimistic about the economic outlook. The Fed’s acknowledgment of progress towards its inflation target, combined with steady interest rates, appears to have bolstered confidence across various asset classes.
As the market looks ahead to the potential September rate cut, investors will likely continue to monitor economic indicators closely. The interplay between monetary policy, inflation trends, and asset prices will remain a key focus for both traditional and cryptocurrency markets in the coming months.
>> Also read:
- Fed’s Dilemma: Job Market Trends and Economic Outlook for 2024
- The Fed’s Fifth Rate Decision: Impact on Bitcoin?
