Federal Reserve Lowers Interest Rates

The US central bank (Fed) cut interest rates for the first time in four years on Wednesday, after the last two-day meeting. The Federal Open Market Committee (FOMC) cut the key interest rate by 50 basis points to a range of 4.75% to 5%, according to last night’s statement. Until yesterday, interest rates in the United States were in the 5.25%- 5.5% band, where they have been since July 2023.

The decision regarding the rate cut was not unanimous, as Fed Governor Michelle Bowman was the only one to vote for a 25 basis point cut. However, 11 other voting Fed members supported a half percentage point cut in the Fed Funds rate. Fed Chairman Jerome Powell said at a press conference that the central bank is “not behind the curve” and that the Fed’s decision to cut rates by 50 basis points is a “sign of our commitment” not to get behind the curve in responding to developments in the real economy. 

Fed officials in their latest economic projections also expect two more 25 basis point rate cuts later this year, followed by four cuts in 2025. However, Fed monetary policymakers have indicated that they do not see the key rate returning to levels below 2% in the near future.

Over the long term, lower interest rates tend to push up the prices of riskier assets such as cryptocurrencies or stocks, as yields on safer assets such as bonds tend to fall. Investors are thus incentivised to take more risk in order to achieve higher returns.

Shortly after the announcement, the price of Bitcoin rose by over 1.2% to USD 61,000, but within two hours it had fallen again to USD 59,700. However, overnight Wednesday to Thursday, Bitcoin surpassed the $62,000 level and gained nearly 3% in the last 24 hours. Ethereum also reacted positively to the news, surpassing the $2,400 mark and gaining 4.3% in the last 24 hours.