The U.S. central bank confirmed yesterday that it is lowering interest rates, which is positive news for the crypto market. However, the bank has also sent mixed signals, and the question is how positive the measures will actually turn out for crypto.
The Long-Awaited Decision: Fed Cuts Rates #
Yesterday, the crypto market received a significant boost. The U.S. central bank, the Federal Reserve (Fed), announced a rate cut. This decision had been anticipated for weeks, but the official confirmation immediately led to more optimism among investors.
A rate cut traditionally acts as a catalyst for higher-risk markets, and the crypto market is no exception. Lower rates increase liquidity and make riskier investments more attractive. Rate cuts are therefore often accompanied by rising crypto prices.
The Fed Announces Its Plans #
Although much of the focus was on the Fed’s rate decision, another announcement drew even more attention. In fact, this announcement put the rate decision in a completely different light, according to Crypto Rover on X:
The Fed announced it will invest $40 billion per month in short-term government bonds. This injects money into the U.S. financial system, but not as much as the Fed typically does during rate cuts. Then, the bank invests in long-term bonds, the analyst noted.
Short-term bonds are essentially loans to the government, where an investor receives interest over a relatively short period, such as a year. In the short term, the Fed stimulates the market, but the steps the bank takes have less impact on long-term liquidity and interest rates.
Moreover, the Fed hinted at only one rate cut in 2026 and no more. This is less than the crypto community had hoped for.
”Overall, the meeting seemed a bit hawkish,” said Crypto Rover. Hawkish is a term meaning ‘aggressive’ and colloquially refers to a focus on raising interest rates and restrictive measures.
The Fed Remains Cautious and the Market Uncertain #
From the speech by Jerome Powell, the chairman of the Fed, it appears that the bank is preparing for a somewhat uncertain economic future with the announced plans. The bank noted that government reserves are low and the labor market and inflation are not at desired levels.
The reaction of the crypto market is therefore not entirely positive and the uncertainty is visible. The total market value of the crypto market has fallen by over 2 percent today. Bitcoin initially rose yesterday but has already fallen by 1.8 percent today.