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The Federal Reserve lowered interest rates by a quarter percentage point on Wednesday, reducing its benchmark federal funds rate to a target range of 4.00% to 4.25%. The action, largely anticipated by markets, represents the central bank’s first rate decrease in years and mirrors escalating worries over decelerating job growth and augmented downside threats to the U.S. economy.
In its announcement, the Federal Open Market Committee (FOMC) mentioned that “recent indicators indicate that economic activity growth has moderated in the first half of the year. Job increases have slowed, and the unemployment rate has risen slightly but remains low. Inflation has increased and stays somewhat high.”
The Fed underscored its dual mandate of maximum employment and steady prices but recognized that “uncertainty regarding the economic outlook remains high” and that “downside threats to employment have escalated.”
The choice to lower rates by 25 basis points was supported by 11 committee members, including Chair Jerome Powell. A dissent was noted from Stephen I. Miran, who advocated for a larger 50-basis-point reduction.
Bitcoin’s Response to the Fed Reduction
After the announcement, Bitcoin (BTC) climbed slightly over $116,000, based on information from Bitcoin Magazine Pro. This movement reflects investor sentiment that a more relaxed monetary policy could enhance risk assets, including cryptocurrencies like Bitcoin.
Market analysts highlighted Bitcoin’s swift reaction as an indicator of its increasing role as a macro-sensitive asset. While the S&P 500 and Nasdaq reported modest gains, Bitcoin’s price surge highlighted how digital assets might benefit disproportionately from expectations of eased financial conditions.
Policy Perspective
The Fed emphasized that future changes will rely on incoming information. “In evaluating any further modifications to the target range for the federal funds rate, the Committee will thoroughly assess incoming data, the developing outlook, and the balance of risks,” the announcement stated.
The FOMC also reaffirmed its dedication to quantitative tightening, persistently reducing its assets in Treasury securities and mortgage-backed instruments.
Looking forward, traders are currently factoring in the possibility of additional cuts if inflation continues to decrease and the job market further weakens, according to Bloomberg. Powell is anticipated to elaborate on the Fed’s perspective in his press briefing later today.
With this recent action, the central bank has indicated a careful shift toward easing. For Bitcoin, the reaction suggests that digital assets may be among the initial beneficiaries of the Fed’s early steps toward a looser policy.
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