- A bumpy day for Bitcoin yesterday, as positive US CPI news saw it surge early, before tanking on the back of a disappointing downgrading of forecast interest rate reductions from the Fed.
- The US Federal Reserve now says it expects to see only a single rate reduction in 2024, down from its previous forecast for three cuts.
- The Fed’s focus remains on bringing inflation back to its target rate of 2% and any further rate cuts will be dependent on data showing inflation is closing in on this target.
It was a turbulent day for Bitcoin yesterday—after starting the day strongly the OG crypto saw its early gains wiped out by disappointing economic news from the US Federal Reserve.
After riding high on better than expected consumer price index (CPI) data. But Bitcoin’s price abruptly plummeted after the Federal Open Market Committee (FOMC) of the US Fed announced its decision to maintain the federal funds rate at its previous level, and also revised down its 2024 forecast interest rate reduction from three 25 basis point cuts to a single 25 point cut.
After starting the day in the US$67,000 range, Bitcoin surged early after the CPI data showed an unexpected drop in inflation last month and almost broke US$70k. It then fell off a cliff following the Fed’s announcement. At the time of writing, according to CoinGecko Bitcoin was changing hands at around US$68,000, up about 1.3% on the day.
Related: Crypto Market Rocked by Massive Selling Pressure as CPI Data Looms
Inflation Reduction Main Focus, Big Rate Cuts In 2025 Forecast
It was widely expected that the FOMC would keep the federal funds rate, the rate at which commercial banks can lend their excess reserves to each other overnight, at its previous level.
What took the market by surprise was the increase in the predicted 2024 year-end rate—from 4.6% a few months ago to 5.1%. This increase means that now only a single 25 basis point rate cut is expected this year. Previously three 25 basis point cuts had been expected.
The Fed also updated its 2025 year-end rate prediction, which now sits at 4.1%, meaning it expects to see a total of 100 basis point interest rate cuts next year.
In describing its battle to bring down stubbornly high inflation, the Fed said it’d made “modest further progress” towards hitting its target inflation rate of 2%. This may sound subdued, but it’s an improvement over the Fed’s last policy statement released in May, in which it said there was “a lack of further progress toward the Committee’s 2 percent inflation objective.”
Related: Cooling US Inflation Sparks Rate Cut Hopes, Triggers $110M Crypto Short Liquidations, and Fuels Market Rally
In his press conference following the meeting, Fed Chairman Jerome Powell said that more evidence inflation is improving will be needed before the central bank commits to further rate cuts:
We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2 percent.
Jerome Powell, Chair of the US Federal Reserve Commenting on the earlier positive CPI news that showed core inflation was rising at 3.4% annually, the slowest pace in three years, Powell said “we welcome today’s reading and hope for more like that.”
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