After the Federal Reserve lowered the interest rate by 0.25%, the crypto market experienced liquidations exceeding $239 million within just a few minutes. Bitcoin momentarily fell below $100,000, with other major cryptocurrencies following a similar trend.
On December 19, the Federal Reserve decreased its primary interest rate by 25 basis points and cautioned about potential cuts in the upcoming years. The Fed suggested that it was likely to reduce rates only two more times in the new year.
Federal Reserve Chair Jerome Powell stated that with the U.S. government adopting a less restrictive approach, the Fed can “exercise more caution as we deliberate on further adjustments to our policy rate.”
“We believe the economy is in [a] really solid condition. We consider the current policy to be in a favorable state,” he remarked.
In the wake of the Fed’s rate reduction, the total long liquidations in the crypto market skyrocketed by $200 million, increasing from just $39.73 million to an astonishing $239.2 million within 30 minutes after the news broke, according to Coinglass data. Over the past 24 hours, total liquidations in crypto assets reached $853 million, with Ethereum taking the lead at $134.9 million.
As reported by crypto.news, Bitcoin fell below the $100,000 mark, dropping by 5%, but saw a slight recovery shortly thereafter. Currently, Bitcoin trades at $101,705, reflecting a 2.35% drop over the last 24 hours.
Other prominent cryptocurrencies, such as Ethereum, Solana, and XRP, also mirrored Bitcoin’s decline. Furthermore, several altcoins, including Dogecoin and Pepe, faced challenges following the Fed’s announcement.
Following the rate cut, Ethereum fell by 0.68%. In the past 24 hours, Ethereum has experienced a 4.5% decline, holding a price of $3,674. Meanwhile, XRP saw its price decrease by nearly 3%. Over the last 24 hours of trading, XRP has dropped nearly 7%, currently priced at $2.36.
Solana also felt the repercussions of the Fed’s decision, with the popular meme coin losing 1.15% initially and continuing its downward trend with a 3.58% decrease in the last 24 hours. The token is currently trading at $208.98.
The altcoin market endured hardships, with the total market capitalization of meme coins declining by nearly 8% to $105.2 billion, as reported by CoinMarketCap. The leading meme coin by market value, Dogecoin, declined by over 7% shortly after the Fed’s rate cut and has not bounced back since, currently trading at $0.36.
Simultaneously, PEPE fell by nearly 4% right after the rate cut and has decreased over 11% in the previous 24 hours, according to data from crypto.news.
The cautious stance of the Fed concerning future rate cuts indicates a sustained commitment to managing inflation, which could lead to a strengthening dollar. This might suggest a possible reduction in the public’s investment in alternative assets such as cryptocurrencies.
On Wednesday, the Federal Reserve reduced interest rates by 25 basis points, making the federal funds rate fall within the range of 4.25% to 4.50% after their December meeting.
The choice to decrease rates by 25 basis points aligned with market participants’ predictions. However, the crypto market suffered a decline following the Fed’s announcement.
This reaction could be related to the anticipated outlook for 2025 rather than the December rate cut itself.
Chair Jerome Powell indicated that the apex bank revised its 2025 projections, reducing potential rate cuts from four to two. This hints at a more hawkish perspective for the next year, provoking a sell-off in the crypto sector.
Additionally, the Fed raised its forecasts for PCE inflation from 2.1% to 2.5% by the end of 2025, suggesting that inflation might rise in the upcoming year.
This may also affect the current bullish trend in the crypto market, as investors are now bracing for unfavorable market conditions next year.
Following the announcement, Bitcoin dropped to $100,314, marking a 5.4% decline, as the entire crypto market lost $200 million in market capitalization.
Most leading altcoins fell alongside Bitcoin, with Ethereum also seeing a decline of over 6% within the past 24 hours.
Other tokens like XRP, Solana, and Dogecoin experienced drops of 10%, 7%, and 9%, respectively.
The recent downturn led to liquidations totaling $675 million in the past 24 hours, with Bitcoin and Ethereum facing long liquidations exceeding $100 million each.
The stock market also began to face losses, evidenced by a significant drop in the S&P 500 following the Fed’s decision, highlighting a close correlation between the reactions of crypto and stocks to the Federal Reserve’s choices.
The Federal Reserve has progressed significantly compared to a few years prior: In 2022, inflation was over double its current level, and many economists were concerned that the central bank’s actions might lead to economic hardship — or even a recession — as it quickly raised interest rates to dampen demand and bring rising prices back under control.
That scenario did not occur. The job market experienced a slowdown without collapsing, and inflation subsided enough for the Fed to start reducing interest rates in September.
However, the Fed is now entering a new stage in its pursuit of an economic soft landing.
Officials believed it was evident that rates needed to decrease considerably from their peak of 5.3 percent, and they have consistently lowered them to about 4.4 percent through three consecutive cuts. Policymakers are cautious about cutting rates excessively to avoid rekindling economic activity, and they have reached a juncture where it is unclear how much further rates should decrease.
“Our policy stance is now significantly less restrictive,” Jerome H. Powell, the Fed chair, mentioned during a news conference on Wednesday. “Thus, we can be more cautious as we consider further adjustments to our policy rate.”
“From here, it’s a new phase,” Mr. Powell subsequently stated.
The Fed’s projections clarify that central bankers are set to slow down rate cuts significantly over the next few years as persistent inflation remains a concern.
Fed officials anticipate lowering rates to 3.9 percent by 2025 in their latest economic assessments — indicating they plan to implement only two rate cuts next year. This is a reduction from their previous forecast of four cuts made in September.
They also foresee two rate cuts in 2026 and one in 2027.
The precise timing of the Fed’s future rate cuts remains uncertain, and Mr. Powell emphasized that any decisions would depend on incoming data. He indicated that the Fed might refrain from cutting rates if inflation were to remain unexpectedly high.
“We’re going to be looking for further progress on inflation for additional cuts,” Mr. Powell said on Wednesday.
He added that further softening in the labor market was “not something we need to see.” However, he did not imply that the Fed would cut interest rates solely to prevent deterioration in job conditions, as it has done in recent months.
The Fed chair delivered an overall hopeful message to the American public: “The U.S. economy is performing very, very well — considerably better than our global peers,” Mr. Powell noted. “The outlook for our economy is quite bright. We need to stay focused on our task, though.”
The Federal Open Market Committee (FOMC), which is the branch of the Fed responsible for determining monetary policy, stated in a release that “labor market conditions have generally eased, and the unemployment rate has increased but remains low,” and while inflation has moved closer to the 2% target, it “is still somewhat elevated.”
“The Committee aims to achieve maximum employment and maintain inflation at 2 percent over the long term. It assesses that the risks to achieving its employment and inflation objectives are approximately balanced. The economic outlook is uncertain, and the Committee is attentive to the risks that could affect both sides of its dual mandate,” the FOMC added.
One member of the FOMC, Cleveland Fed President Beth Hammack, expressed dissent regarding the decision to lower rates, advocating instead for keeping the benchmark rate in a range of 4.5% to 4.75%.
The FOMC also issued a summary of economic forecasts, which indicated two rate cuts in 2025, two in 2026, and one in 2027. This forecast is lower than previous expectations of four cuts in 2025 released in September.
The summary shows the median for the federal funds rate at 4.4% by the end of 2024, decreasing to 3.9% in 2025, 3.4% in 2026, and 3.1% in 2027. These forward-looking estimates are higher than those from September, with the 2025 and 2026 figures each half a percentage point higher and the 2027 projection 0.2 percentage points higher.
It also anticipates that the personal consumption expenditures (PCE) index — the Fed’s preferred measure of inflation — will end this year at 2.4% and rise to 2.5% in 2025, compared to 2.1% in the earlier projection from September. The PCE is projected to drop to 2.1% in 2026 and reach 2% in 2027 and beyond.
INFLATION INCREASES 2.7% IN NOVEMBER, CONSISTENT WITH EXPECTATIONS
“Today was a closer call, but we determined it was the right decision as it best supports both of our objectives, maximum employment and price stability,” Fed Chair Jerome Powell said during a press conference.
“We perceive the risks as two-sided — either moving too slowly and inadvertently harming economic activity and the labor market, or moving too quickly and unnecessarily jeopardizing our progress on inflation. Therefore, we are attempting to navigate between these two risks, leading us to decide to proceed with another cut,” he explained.
Powell indicated that the risks to the labor market on the downside have lessened, but mentioned that it remains looser than pre-pandemic levels and is still cooling, which is not necessary for bringing inflation down to the 2% target. He also highlighted that the rate of inflation decline has stabilized over the past year partly due to housing services inflation decreasing more slowly than anticipated, along with some “bumpiness” in the prices of goods.
“We paired this decision with the extent and timing language in the post-meeting statement, which suggests that we are at or nearing a point where it will be suitable to reduce the pace of further adjustments,” Powell remarked.
THE US ECONOMY CREATED 227K JOBS IN NOVEMBER, EXCEEDING EXPECTATIONS.
When asked about what factors policymakers will consider for future rate cuts as the new year approaches—especially in light of the Fed’s economic projections indicating fewer rate cuts in 2025 than previously expected—Powell responded, “We are quite close to neutral at about 4.3% and change; we think that the policy remains meaningfully restrictive. However, regarding further cuts, we will be monitoring progress in inflation alongside the continued strength of the labor market.” He added, “As long as the economy and labor market remain robust, we can be cautious when contemplating additional cuts, all of which is reflected in the December SEP, showing a median forecast of around two cuts next year compared to four in September.”
“The U.S. economy is performing exceptionally well—significantly better than our global counterparts—and there is no reason to believe a downturn is more likely than usual. Thus, the outlook for our economy is quite positive. We must remain focused and continue implementing restrictive policies to achieve the 2% inflation goal. Furthermore, we will closely monitor the labor market’s status,” Powell said.
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The chair also addressed the effects of inflation on American consumers in recent years. Prices are nearly 20% higher than four years ago, even though inflation has decreased from a 40-year peak of 9.1% in June 2022 to 2.7% in November 2024.
“What individuals are experiencing now is the impact of elevated prices, rather than high inflation. We are fully aware that prices have surged significantly, and this is deeply felt—especially in food, transportation, and home heating. Consequently, there is substantial pain from that swift rise in inflation, which was a global phenomenon,” Powell stated.
Markets dropped following the Fed’s decision, with the S&P 500 declining over 1.7% in the last hour of trading and the Dow falling over 1.4%. The likelihood of the Fed pausing its rate-cutting during the January 28-29 meeting remained mostly unchanged after the decision, with a 96.5% chance of rates staying at the newly established 4.25% to 4.5% range next month, showing little variation from Tuesday, according to the CME FedWatch tool.
“The Fed has successfully maneuvered 100 basis points of cuts in this cycle so far, but given the economic trajectory and the recent increase in inflation, it will be more challenging for the Fed to justify continuing rate cuts at the same pace,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
“Additionally, Powell and his colleagues cannot afford to misjudge inflation once more, as upside risks remain. Thus, we expect the threshold for future rate cuts to be raised, and given that the Fed is data-dependent, any significant upticks in inflation increase the likelihood that further rate cuts, if any, will be limited,” he added.
“In many respects, today’s cut and the release of revised expectations for 2025 reflect a strong endorsement of the current economic and job markets. This optimism may also inspire business leaders seeking a clear signal to increase hiring,” stated Cory Stahle, economist at the Indeed Hiring Lab.
“Although there remains considerable uncertainty surrounding the impact of any new policies implemented by the incoming administration, and no assurance that the current market momentum will sustain itself in the medium to long term, the labor market appears inclined to enter 2025 with strong momentum and support,” Stahle concluded.
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