The US Federal Reserve reduced its interest rate by 25 basis points on Thursday, in a decision did not exactly come as a surprise.
The US Federal Reserve reduced its interest rate by 25 basis points on Thursday. While this decision did not exactly come as a surprise, it saw the rate brought to a range of 4.5% to 4.75%, as the central bank took its efforts to support economic growth to another level.
From all indications, the move was made necessary by the ongoing inflation worries in the US, It was also a move similar to the decisions taken by other global central banks. Seeing as the Bank of England and Sweden’s Riksbank also announced rate cuts earlier on the same day, it appears to be a common decision around the globe to loosen monetary policy.
Federal Reserve Signals Confidence Despite Inflation Concerns
The Fed, in its statement, acknowledged that the inflation might have eased a bit and may be nearing the target level. That is, the 2% objective that the committee has its eyes focused on. Part of the statement reads:
“Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low.”
While inflation is gradually progressing toward this 2% goal of the Fed, it remains above target. Hence, the continued caution from policymakers.
Meanwhile, the Federal Reserve Chair Jerome Powell has attempted to douse tensions about Trump’s economic plans. The newly-elected president has been quite vocal with his plans, which include tax cuts, tariffs, and deregulation. For many, these moves will undoubtedly push inflation higher, forcing the Fed to take more aggressive approaches.
However, Powell has said that election results would in no way impact the Fed’s short-term policy decisions. He disclosed this in his first address since Donald Trump’s recent election victory.
Bitcoin and Stocks Surge
Notably, the Fed’s announcement has fueled a rally in the financial markets, with Bitcoin BTC $94 100 24h volatility: 0.3% Market cap: $1.87 T Vol. 24h: $15.61 B hitting a fresh record price of $76,951 before slightly retreating. As expected, the majority of the broader market followed suit, with the CoinDesk 20 Index climbing by 4.5% for the day.
US stock indexes also responded positively to the Fed’s decision. The S&P 500 rose by 0.8%, while the Nasdaq gained 1.5%, reaching session highs.
Translating the decision to cut rates, investors believe that the Fed’s confidence in the economy’s resilience is growing, even as inflation remains a concern.
While the current rate cut might suggest a pause in further adjustments, the CME FedWatch Tool indicated a shift in expectations, with only a 28% chance that the Fed will hold rates steady at the next December meeting, down from 33% before Thursday’s announcement.
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