The Federal Reserve announced on Wednesday that it will lower its benchmark interest rate by 50 basis points, marking the central bank’s first cut since the start of the COVID-19 pandemic.
Immediately after the announcement, Bitcoin’s price rocketed back above $60,000, while the SP500 shot up by 0.7%.
- The central bank said it has gained ‘greater confidence” that inflation is heading back down to 2%, even though it remains somewhat elevated.
- “Job gains have slowed, and the unemployment rate has moved up but remains low,” the Fed added.
This month’s meeting was one of the first in years when the Fed’s next policy decision was truly a toss-up for odds makers. - Hours before their announcement, interest rate traders priced in the odds of a 50 basis point cut at 65%, versus 35% odds for a 25 point cut, according to CME Fedwatch . Meanwhile, crypto bettors on Polymarket had the odds at 43% for 50bps, and 57% for 25 bps.
- Lower rates are generally seen as bullish for Bitcoin since it allows investors to borrow money more cheaply to buy risk assets. It also increases the money supply, which is generally bullish for scarce assets like gold or BTC.
- That said, former Fed Vice Chair Richard Clarida warned the Financial Times last week that a non-standard 50 basis point cut could spook the market into thinking something is wrong. “They can trigger the view of, ‘Wow. What do they know that we don’t know?’” he said at the time.
