The Fed’s decision to pause rate cuts reflects economic stability and persistent inflation, while simultaneously signaling a pivotal shift in its stance toward cryptocurrency adoption.
In a significant development, the Federal Reserve has paused rate cuts. According to Forbes, the Federal Open Market Committee (FOMC) kept the federal funds rate steady at 4.25% to 4.5%.
This development came after three consecutive reductions, marking a shift from last year’s aggressive move to combat inflation. The Fed cited steady economic growth, a strong labor market, and persistent inflation as key reasons for the decision.
A New Chapter in Federal Reserve Policy
Despite keeping rates steady, the Federal Reserve remains open to adjustments, and for now, it has opted for a “wait-and-see” approach. The crypto market reacted mildly to the news. Bitcoin BTC $95 709 24h volatility: 4.0% Market cap: $1.91 T Vol. 24h: $124.43 B price held above $102,000 while Ethereum ETH $3 174 24h volatility: 2.6% Market cap: $384.13 B Vol. 24h: $50.58 B and Solana SOL $141.3 24h volatility: 4.2% Market cap: $78.29 B Vol. 24h: $10.00 B dipped slightly, leading to a 2% drop in the combined market cap.
This pause in interest rates marks a turning point in the financial market. Since September, the Federal Reserve has slowly lowered rates to control inflation while keeping the economy stable. However, the Fed hinted at an improving economy with headwinds as inflation has stayed above the 2% benchmark for 45 months.
For comparison, rates stayed under 3% from 2009 to 2021. The current rates are much higher, showing a more hawkish outlook mixed with a milder borrowing rate framed to help grow the stock market.
Higher rates make loans costlier, affecting home mortgages and business loans. In December, the Fed made it clear that it does not expect big rate cuts, with only a small drop predicted for 2025. Notably, the Fed’s rate future remains uncertain, with pressure from multiple sources, including President Donald Trump. He had initially called for an immediate rate cut, pushing for more presidential influence over monetary policy.
Tariffs also add complexity, with Goldman Sachs predicting that trade policy will impact the Fed’s rate decisions and inflation control. Speaking about tariffs, Jerome Powell advocated caution amid uncertainties in the countries it might lock horns with.
“The range of possibilities is very, very wide,” he said. “We don’t know for how long or how much, what countries. We don’t know about retaliation. We don’t know how it’s going to transmit through the economy to consumers. That really does remain to be seen.”
The Place of Bitcoin and Cryptocurrencies
In his speech, the Federal Reserve Chair has made a complete pivot from his earlier stance regarding Bitcoin and digital currencies. From his skepticism about the asset class, the Fed Chair has confirmed that banks may be able to provide their customers with crypto services.
Experts believe this implies the death of Operation Chokepoint 2.0, a restriction that has plagued the crypto industry thus far. This shift also underscores the influence of President Donald Trump’s administration.
With pro-crypto leaders like Scott Bessent as the US Treasury Secretary and Howard Lutnick of the Commerce Department, a comprehensive change is expected at different levels of government.
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