Crypto markets fell on Wednesday following the Federal Reserve’s 25 basis point rate cut, lowering the federal funds rate to 3.50–3.75%, along with the announcement of a $40 billion monthly short-term Treasury bill purchase program. Traders weighed these moves against U.S. liquidity conditions and the Fed’s future policy path.
The decision marked the Fed’s third rate cut of the year, but it was not unanimous. Several policymakers argued a cut was not “appropriate,” underscoring internal divisions as the Fed attempts to balance cooling inflation with signs of slowing growth.
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The central bank also released its final Summary of Economic Projections (SEP) for 2025, showing officials expect one rate cut in 2026, in line with their September projections.
Fed Chair Jerome Powell noted that inflation may peak early next year and emphasized that the T-bill purchases are aimed at managing liquidity in the banking system, not as a return to quantitative easing.
Initial Optimism Faded
Crypto prices initially spiked following the rate cut and growth forecasts, including projected U.S. GDP growth of 2.3% in 2026 after 1.7% this year.
However, the rally quickly faded. The broader crypto market fell around 2.7%, with Bitcoin and Ether losing ground as traders reassessed the Fed’s mixed signals.
Much of the volatility came from the T-bill purchase announcement. Some speculated it could resemble the early stages of quantitive easing (QE), while others emphasized it reflects tight liquidity in banking markets rather than stimulus.
“This isn’t QE, it’s a sign liquidity in the banking system is too tight,” posted the financial analyst Financelot on X, adding that such conditions can precede deeper interventions. The account urged observers to monitor REPO and SOFR volumes, key gauges of short-term funding stress.
REPO (repurchase agreements) and SOFR (Secured Overnight Financing Rate) markets are typically the first places where tightening liquidity becomes visible. Rising repo rates or unstable SOFR prints can indicate that banks are struggling to access cash.
Why This Matters
The Fed’s rate cut and liquidity operations introduced fresh uncertainty at a moment when crypto markets are exceptionally sensitive to policy shifts.
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People Also Ask:
Lowering rates reduces borrowing costs, stimulates economic activity, and can support growth when inflation is under control.
It’s when the Fed buys short-term government securities to inject liquidity into the banking system, ensuring smooth money-market operations.
By influencing liquidity and interest rates, T-bill operations can indirectly impact investor risk appetite, leading to crypto price swings.
QE is broad-scale asset buying to stimulate the economy, often including longer-term bonds. T-bill purchases are primarily short-term liquidity management, not full-scale stimulus.
REPO (repurchase agreements) and SOFR (Secured Overnight Financing Rate) are short-term funding markets. They indicate how easily banks can access cash, with volatility signaling liquidity stress.
