The United States Federal Reserve recently announced a 0.25% interest rate cut, aligning with market expectations. During a press conference, Fed Chairman Jerome Powell justified the decision as a step toward achieving a more balanced economic state. However, he indicated that the Federal Reserve would adopt a cautious stance concerning future rate cuts. This announcement triggered notable declines in both the US stock market and cryptocurrency market.
Understanding the US Fed Rate Cut and Its Inflation Goals
The Federal Reserve’s recent adjustment brings the US Fed Fund interest rate down to 4.5%, marking the third significant change this year. Initially, the rate was reduced to 5% on September 18, followed by another decrease to 4.75% on November 7. In the press conference, Powell reiterated the Fed’s dedication to supporting the US economy and job market. He highlighted that the decision for further rate cuts would rely heavily on analyzing new economic data, evaluating the economic outlook, and assessing risks related to the economy and inflation.
At the beginning of the year, the US inflation rate was 3.1%, peaking at 3.5% in March. Between March and September, inflation showed a steady decline, reaching a yearly low of 2.4% in September. However, since then, it has consistently increased, hitting 2.7% in November.
Market Reactions: Plummeting Stocks and Crypto Values
The announcement of the interest rate cut on December 18 led to a decline of approximately 0.58% in the cryptocurrency market. Bitcoin prices, which started the day at $106,080.05, fell significantly to $100,207.97 by the close, representing a 5.85% decrease. The S&P 500 index also experienced a substantial drop of over 2.90% during the same period.
Altcoins Facing Greater Challenges
On the morning of December 18, the total market capitalization of the cryptocurrency market, excluding Bitcoin, was at $1.53 trillion. By the end of the day, it had decreased to $1.42 trillion, marking a 7.74% decline. Key altcoins such as Ethereum, XRP, BNB, Solana, Dogecoin, and Cardano also faced significant setbacks, with Ethereum dropping by over 4.7%, XRP by 6.8%, BNB by 1.6%, Solana by 3.3%, Dogecoin by 6.2%, and Cardano by 4.9%.
In summary, the Federal Reserve’s cautious outlook indicates that markets may face prolonged challenges. Investors are advised to stay vigilant and informed about potential economic shifts that could influence their portfolios.
