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Fed's 2025 Interest Rate Reduction: Crypto Markets Surge Amid Ongoing Inflation Concerns

Fed's 2025 Interest Rate Reduction: Crypto Markets Surge Amid Ongoing Inflation Concerns

Bitget-RWA2025/09/24 10:38
By:Coin World

- U.S. Federal Reserve cuts rates by 25 bps to 4.00%-4.25% in 2025 amid slowing labor market and persistent inflation. - Cryptocurrencies like Bitcoin and Ethereum briefly surged post-announcement but saw muted gains as the move was largely priced in. - Fed Chair Powell emphasized inflation vigilance, with potential further cuts contingent on data, tempering crypto optimism. - Institutional inflows into Bitcoin ETFs accelerated, though volatility persisted, with SEC decisions on ETFs seen as pivotal for ma

Fed's 2025 Interest Rate Reduction: Crypto Markets Surge Amid Ongoing Inflation Concerns image 0

On September 17, the U.S. Federal Reserve implemented its initial interest rate reduction of 2025, lowering the federal funds rate by 25 basis points to a new range of 4.00%–4.25%. This move, which had been largely expected by investors, signals a change in monetary policy as the labor market shows signs of cooling and inflation remains stubbornly high. During the press conference following the meeting, Fed Chair Jerome Powell stated that the rate cut was intended to bolster economic growth, but stressed that the central bank would continue to closely monitor inflation, which is still above the 2% goal. The core personal consumption expenditures (PCE) index registered 2.9% in July, highlighting the Fed’s cautious stance title2 [ 2 ].

The rate reduction led to a varied reaction across financial markets. Cryptocurrencies, including

and , saw an initial surge after the announcement, with Bitcoin reaching $117,000 and Ethereum moving past $4,600. Despite these increases, the gains were relatively modest compared to what traders had anticipated before the announcement, as much of the expected move had already been factored in title2 [ 2 ]. Experts attributed the subdued market response to several elements: the widely expected nature of the cut, the Fed’s prudent messaging, and immediate profit-taking by market participants. The phenomenon of “selling the news” was apparent, as futures markets recorded higher open interest while spot trading activity stayed muted title2 [ 2 ].

Powell’s comments underscored the delicate position the Fed occupies as it seeks to foster economic expansion while keeping inflation in check. He pointed out that indicators such as slower job creation and the risk of rising unemployment remain significant concerns. The Federal Open Market Committee (FOMC) left open the possibility of two more rate reductions before the end of the year, but emphasized that any further moves would be contingent on future economic data. This conditional approach dampened enthusiasm in riskier assets, including cryptocurrencies, where volatility persisted despite the easing of policy title2 [ 2 ].

The effects on digital asset markets were complex. Lower interest rates generally make holding non-yielding assets like Bitcoin more attractive, and Bitcoin’s market cap rose by 2% after the announcement title2 [ 2 ]. However, alternative coins such as

, , and experienced even stronger short-term rallies, indicating a shift in capital toward higher-risk digital assets. Analysts observed that institutional investments in spot Bitcoin ETFs had picked up before the Fed’s decision, but subsequent pullbacks revealed the rally’s vulnerability title2 [ 2 ].

Looking forward, the direction of Fed policy will depend on trends in inflation and employment data. Should inflation continue to move closer to the 2% objective and job markets remain steady, additional rate cuts could follow, potentially lifting crypto prices further. On the other hand, persistent inflation or a sharper economic slowdown could cause the Fed to pause, adding uncertainty for riskier assets title2 [ 2 ]. Regulatory shifts, especially those affecting crypto ETFs, may also play a role in shaping investor sentiment. Upcoming SEC decisions regarding spot Bitcoin ETFs are considered crucial, with favorable outcomes likely to fuel further bullishness title2 [ 2 ].

The Fed’s initial rate cut of 2025 marks a move toward a more supportive monetary stance, but also highlights the complexities of the current economic landscape. For the cryptocurrency sector, this policy change offers some positive momentum, though its lasting effects will depend on broader economic trends and the pace of institutional adoption. As Powell reiterated, the Fed remains committed to making decisions based on incoming data, leaving markets to weigh the ongoing trade-off between fostering growth and managing inflation title2 [ 2 ].

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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