The U.S. Federal Reserve has cut the benchmark interest rate by 25 basis points.
Bitcoin, the leading cryptocurrency, is changing hands at $115,997 on the Bitstamp exchange after briefly spiking above the $116,000 level.
The decision is in line with market expectations. All major analysts (except for Standard Chartered and Societe Generale) expected the bank to make such a move.
This is the first rate cut implemented by the Fed since December 2024.
There was only a 7% chance of a higher rate cut than 25 basis points on the Kalshi prediction market ahead of the decision.
The Fed and Chairman Jerome Powell previously attracted criticism from high-profile Republicans due to persistent reluctance to make a dovish U-turn with aggressive rate cuts that would boost the economy.
Facing dilemma
The Fed will have to make tough choices going forward, given that the job market is becoming considerably weaker while inflation remains stubbornly hot.
As reported by U.Today, odious financial commentator Peter Schiff previously criticized the idea of implementing a rate cut, arguing in favor of a rate hike.
Market observers now expect the Fed to implement two more rate cuts in the fourth quarter of 2024.
A dot plot shows that a narrow majority of Fed officials are in favor of a total of three rate cuts this year. Moreover, recent changes in the Federal Open Market Committee (FOMC) statement are dovish.
Post-LTCM easing vibes
Notably, the Fed moves to loosen monetary policy when both stocks and gold are hitting record highs.
The fact that the central bank has decided to cut rates while "animal spirits" are rampant is reminiscent of the post-LTCM easing cycle in 1998, according to Jurrien Timmer, director of global macro at Fidelity Investments.
Back then, the Fed moved to cut rates following the collapse of Long-Term Capital Management to stabilize Wall Street, which galvanized risk-taking.
"The Greenspan Fed cut rates three times even though the market was strong and there was no recession," Timmer said.
It remains to be seen whether a similar rate-cutting spree will take place this time around.
Dan Burgin
Vladislav Sopov
U.Today Editorial Team
