Market Reaction to Federal Reserve Policy Decision
The U.S. Federal Reserve cut interest rates by 25 basis points on December 18, 2024, bringing the benchmark fed funds rate to 4.25%–4.50%. While this marked the third consecutive rate cut in 2024, Chair Jerome Powell’s hawkish tone during the press conference triggered a sell-off in Bitcoin (BTC) and major altcoins.
Key Takeaways:
- BTC dropped 5% to ~$101K post-announcement.
- Altcoins (XRP, ADA, LTC) plunged ~10%.
- Fed’s updated economic projections signal fewer rate cuts in 2025 than previously expected.
Federal Reserve’s Policy Shift
Rate Decision and Economic Projections
- Third 25-bps cut in 2024 (total cuts: 100 bps since September).
- 2025 rate forecast: Fed funds rate at 3.9% (up from 3.4% in September).
- Inflation outlook: Core PCE inflation projected at 2.5% for 2025 (vs. 2.2% earlier).
Powell emphasized caution:
"The slower path of rate cuts reflects persistent inflation pressures. We’re nearer the neutral rate, which warrants patience."
Impact on Crypto Markets
- Bitcoin: Fell from $104K to $101K during Powell’s speech.
- Altcoins: Underperformed BTC, with double-digit losses.
- Traditional Markets: S&P 500 also hit session lows.
👉 Why market liquidity matters for crypto
Analyst Insights: Liquidity and Bitcoin
Andre Dragosch, Bitwise’s European Head of Research, noted:
- Tightening financial conditions despite rate cuts (rising bond yields, stronger USD).
- Dollar appreciation risks contracting global money supply, historically bearish for crypto.
- On-chain support for BTC: Declining exchange balances signal a supply deficit.
FAQ Section
1. Why did Bitcoin drop after the Fed meeting?
The Fed’s less dovish 2025 outlook and Powell’s hawkish remarks spooked investors, triggering a risk-off sentiment across assets.
2. How do Fed rate cuts affect crypto?
Lower rates typically boost risk assets like crypto, but stronger USD and inflation concerns can offset gains.
3. Will altcoins recover faster than BTC?
Historically, BTC leads market cycles. Altcoins may rebound later but remain higher-risk.
👉 Crypto market trends to watch
Conclusion
The Fed’s cautious stance underscores the delicate balance between growth support and inflation control. For crypto, macro liquidity trends and USD strength remain critical drivers.
— James Van Straten & Krisztian Sandor | CoinDesk Markets
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