Why Bitcoin Reacted to the Fed's Rate Cut with a Fall

On December 10, the US Federal Reserve (Fed) cut its benchmark interest rate by 0.25 percentage points, setting it in the range of 3.5% to 3.75%. This decision was in line with market expectations, but the accompanying commentary was harsher than market participants had anticipated. As a result, cryptocurrencies, including Bitcoin, plunged, as investors saw no signs of sustained monetary easing.

Highlights of the Fed's Decision

The rate cut occurred amid significant disagreement within the Federal Open Market Committee. Three members voted against it, marking one of the sharpest differences in recent years. Some committee members considered the cut insufficient, while others insisted on a pause. This situation highlights the lack of consensus on the future path of Fed policy.

Long-Term Forecasts

Long-term forecasts remained largely unchanged. The Federal Reserve continues to expect one rate cut each in 2026 and 2027, after which the rate should approach a neutral level of around 3%. This signal appeared cautious to the market and did not contribute to investor confidence.

Monetary Policy Changes

The Federal Reserve also announced the resumption of purchases of short-term Treasury bills. Beginning December 12, it plans to purchase approximately $40 billion over the course of a month to ease tensions in the money market. Although this program is technical in nature, some analysts view it as an additional supportive measure.

Fed Chairman's Comments

Fed Chairman Jerome Powell noted the resilience of the economy, pointed to weaknesses in the labor market, and recalled the revision of inflated employment data. He emphasized that rate decisions will be made on a meeting-by-meeting basis, adding uncertainty to investors.

Crypto Market Reaction

Analysts from The Kobeissi Letter believe that the combination of three rate cuts this year and the launch of bill purchases reflects a slow but noticeable easing of conditions. However, clear signs of sustained easing have not been demonstrated, which has led to a decline in the prices of Bitcoin and other cryptocurrencies.

In Conclusion

Thus, despite the Fed's rate cut, the lack of clear signals about further monetary easing and disagreements within the committee have led to a negative reaction in the crypto market. Investors remain cautious, which is reflected in the prices of digital assets.