Fed Cuts Rates 25bps But Signals Uncertainty Ahead
The Federal Reserve delivered an expected 25 basis point rate cut Wednesday but signaled heightened uncertainty about future policy moves, sending Bitcoin lower as Chair Jerome Powell warned a December cut is "far from" guaranteed.
Bitcoin fell from $113,000 to below $110,000 in the hours following the decision, while Ethereum declined to below $3,900. Total cryptocurrency market capitalization dropped 1.19% to $3.75 trillion as Powell's cautious tone dampened expectations for continued monetary easing.
The Fed lowered its target rate to a range of 4.00-4.25%, marking the committee's continued normalization from restrictive territory. However, the decision drew two dissents, with Kansas City Fed President Jeff Schmid favoring no cut in a hawkish signal that surprised market participants.
"There were strongly differing views today," Powell said during the post-meeting press conference. "A rate cut in December is not to be seen as a foregone conclusion. In fact, far from it."
The uncertainty stems partly from the ongoing government shutdown, which has prevented release of crucial economic data including October inflation and unemployment figures. The Bureau of Labor Statistics has not published jobs reports since the funding lapse, leaving policymakers operating with incomplete information.
"The lack of data amid the government shutdown is a temporary state of affairs, but he acknowledges there's a possibility that it would make sense to be more cautious on December's policy decision if the data vacuum continues," Powell said.
Quantitative Tightening to End
The Fed also announced it will halt balance sheet reduction beginning December 1, ending the quantitative tightening program that has shrunk the central bank's holdings since 2022. Maturing agency debt will be rolled into Treasury bills as the Fed transitions toward a shorter-duration balance sheet composition.
"We want to move toward shorter-duration balance sheet," Powell said. "Reserve decline will happen, but not for long time. Fed will be adding reserves again at a certain point."
Powell characterized Wednesday's cut as "risk management" aimed at insuring against employment market deterioration, even as officials acknowledged lacking usual data to assess economic conditions. The labor market "appears to be gradually cooling," though Powell emphasized the committee sees no acceleration in weakness.
"We do not see job market weakness accelerating," he said. "Not seeing impact of AI in jobless claims data yet."
For crypto markets, the Fed's cautious stance reduces conviction around the accommodative monetary policy trajectory that has supported risk asset rallies. Bitcoin and digital assets have benefited from expectations of continued rate cuts easing financial conditions and increasing liquidity.
The December FOMC meeting on December 9-10 will occur with policymakers potentially still lacking October employment and inflation data if the shutdown extends. Powell suggested the data vacuum could argue for pausing cuts to assess the true state of the economy.
"If there's no government data to reconcile the picture, a very high level of uncertainty, that could be an argument in favor of caution about moving," he said.
Some Fed officials have signaled willingness to pause rate cuts to evaluate whether labor market risks are genuine or statistical noise. The strongly differing views Powell referenced suggest meaningful disagreement about the appropriate policy path amid uncertain economic signals.
Inflation Risks Remain
On inflation, Powell noted that "in near term, inflation risks are tilted to upside" though "September CPI was a little softer than expected." The comments reflect ongoing concern that price pressures have not fully normalized despite progress toward the Fed's 2% target.
Powell pushed back on comparisons between current AI investment and the dot-com bubble, noting that "there was a clear bubble back then, companies now have earnings." He emphasized that consumer spending remains larger than AI investment in the broader economy.
The Fed chair also addressed credit conditions, saying "don't see a broader credit issue at this point, don't see significant deterioration anywhere in economy." The assessment suggests policymakers remain comfortable with financial stability despite recent market volatility.
For December, market participants now face increased uncertainty about whether the Fed continues its cutting cycle or pauses to gather more information. Powell's language marked a notable shift from previous communications that implied a steadier path of policy normalization.
"If we do wind up resuming rate cuts - at some point we will, but some point - I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation on its way to 2% or at 2%," Powell said.
Crypto markets have priced in continued rate cuts as supportive of risk assets through improved liquidity conditions and reduced opportunity cost of holding non-yielding assets like Bitcoin. Any pause in the cutting cycle could pressure digital asset valuations if investors rotate toward higher yields in traditional fixed income.
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