The U.S. Federal Reserve announced a 0.25% rate cut today, bringing interest rates down to a range of 4.5% to 4.75%. This is the second cut in 2024 after the 0.50% cut earlier in September, and it has some interesting effects, especially (and of course) for Bitcoin enthusiasts.
Inflation Under Control, But Why the Cut?
Fed Chair Jerome Powell called this rate reduction a “recalibration.” Over the past two years, the Fed has been aggressively tackling inflation, which reached 9.1% in June 2022, the highest in four decades. Now, inflation appears to be under control, hovering around 2.4%. Powell stated, “We have proven that we can control inflation without damaging the economy, ” which is backed by positive indicators like steady economic growth and an unemployment rate of 4.1%.
However, some are questioning the timing. Typically, the Fed cuts rates when economic activity slows down, but that’s not the case here. The economy continues to grow, and unemployment remains low. This move could be seen as an effort to support continued expansion rather than rescue a struggling economy.
Cheaper Loans, Happier Wall Street
Lower interest rates often lead to cheaper borrowing costs. Mortgage rates, for example, are expected to drop closer to 5%, which could make home buying more affordable. Lower financing costs also mean companies can more easily fund new projects and expansion. It’s no surprise that Wall Street welcomed the news, with a wave of optimism spreading across the financial markets and Bitcoin.
Bitcoin’s Immediate Reaction
Bitcoin didn’t take long to respond. Right after the Fed’s announcement, Bitcoin’s value shot up by over 1.5%, reaching a new all-time high of $76,859, according to CoinMarketCap. This increase isn’t all that surprising if we look at the historical pattern. Bitcoin often thrives when central banks adopt looser monetary policies. With the approval of Bitcoin ETFs earlier this year, institutions have even more avenues to jump into the market, which seems to be fueling the current momentum, as is evident by today’s inflows of over $1 billion.
The Unique Combination: Rate Cuts and Halving
We’re currently seeing an interesting mix of events that could push Bitcoin even further. The recent rate cut comes on the heels of a Bitcoin halving, an event that reduces the rate at which new Bitcoins are created. When you combine these rate cuts with a tighter Bitcoin supply, it creates a unique situation that could drive prices even higher. Many analysts are already talking about a potential year-end rally, with predictions of even greater highs in the near future.
What Could Happen in 2025?
The Fed has also hinted at the possibility of another rate cut in December and maybe more in 2025. The aim seems to be to bring rates down to a “neutral” level, somewhere between 3% and 3.5%. If this happens, here’s what we could potentially see:
- Increased appetite for risky assets like Bitcoin.
- More institutional players getting involved in the crypto space.
- A continued balance between economic growth and stable inflation.
For now, it looks like Bitcoin could keep riding this wave of monetary easing. Lower rates make other investments less attractive, and Bitcoin is proving to be a favorite alternative for many. As we move toward the end of the year, it’s worth keeping an eye on whether the combination of Fed rate cuts and Bitcoin’s unique characteristics will lead to further gains.
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