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Highlights
- Fed rate cut sparks volatility in equity and crypto markets.
- Bitcoin and altcoins see sharp declines amid inflation concerns.
- Uncertainty over Fed’s future rate adjustments affects sentiment.
The Federal Reserve's recent decision to lower its policy rate to the 4.25%-4.50% range has had significant repercussions across financial markets. Despite expectations of a rate cut, cautious remarks by Chair Jerome Powell about future adjustments amidst persistent inflation contributed to sharp declines in equities and cryptocurrencies.
The rate cut aligns with the Fed’s strategy to address macroeconomic pressures, but Powell's warning about potential slowdowns in future cuts caught markets off guard. Equities like the S&P 500 saw a notable dip, with the index falling nearly 3% on the day to close at 5,872.16. Bitcoin (BTC), often considered a hedge against inflation, dropped sharply below $100,000 for the first time in weeks, losing more than 5% before stabilizing to a 3.21% drop over 24 hours.
Other cryptocurrencies mirrored this trend, with Ethereum (ETH), Solana (SOL), and Dogecoin (DOGE) experiencing declines exceeding 4%, while the global crypto market cap dropped to $3.42 trillion before recovering slightly to $3.51 trillion. Meanwhile, long positions in digital assets faced liquidations totaling $709 million, highlighting the fragile sentiment among market participants.
Powell emphasized that the Fed’s future rate adjustments would hinge on measurable progress in curbing inflation, which remains above the 2% target. The Fed’s updated projections reveal only two anticipated rate cuts in 2025, compared to prior expectations of four. This revised outlook, combined with lingering concerns about core inflation drivers like shelter costs, creates a challenging environment for risk-sensitive assets, including cryptocurrencies.
The Fed chair dismissed any immediate changes to regulatory frameworks concerning cryptocurrency holdings, reaffirming the institution's commitment to traditional monetary policy tools. Additionally, Powell highlighted uncertainties surrounding the incoming administration's economic policies, such as tax adjustments and tariffs, which could amplify inflationary pressures.
For digital assets, tighter monetary policies appear to be a substantial headwind. Speculative altcoins like Solana (SOL) and Dogecoin (DOGE) have borne the brunt of these challenges, with declines exceeding 20% from recent highs. Bitcoin’s (BTC) performance continues to reflect broader macroeconomic uncertainty, with its position as an inflation hedge being tested.
As the market processes this new rate environment, upcoming inflation data and the Fed’s January meeting will play pivotal roles in shaping the financial landscape. Investors remain cautious, navigating heightened volatility across both equity and crypto markets.
