• Bitcoin jumped after the Fed’s first rate cut in 9 months, lowering the federal funds rate to 4.00–4.25%.
• Lower borrowing costs boost risk assets, with BTC, ETH, and stablecoin inflows signaling optimism among crypto investors.
• Political pressure on Powell raises inflation risks, leaving uncertainty over long-term impacts on consumers and markets.

The Federal Reserve announced today a cut in interest rates by 25 basis points, citing unsteady labor market conditions and increased inflation. 

For the typical American, these rate cuts mean lower borrowing costs and may be a positive catalyst for the crypto market. However, the decision also carries intensified inflation risks and increased concerns over the Fed’s independence.

Fed Cuts Rates for the First Time in 9 Months

Bitcoin’s price ticked higher immediately after the US Federal Reserve cut interest rates by 25 basis points on Wednesday.

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The Federal Open Market Committee (FOMC) did what many economists and traders predicted: It cut the benchmark federal funds rate to a lower range of between 4.00% and 4.25%. This is the first rate cut in nine months, and follows a 25 basis-point cut in December 2024.

“In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4-1/4 percent,” the Federal Reserve said in a statement. “Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.”

Regarding the possibility of further rate cuts, it said:

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

The decision’s impact on Bitcoin may also positively affect the rest of the crypto market in the coming days. 

A Positive Catalyst for Crypto?

The crypto market was cautiously optimistic before the Fed decided on interest rates. Now that the cuts turn into reality, good things may be in store for traders. According to data from CryptoQuant, investors have been getting ready to buy. 

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“In general, a Fed cut is a positive catalyst for risk assets such as cryptocurrencies,” said Julio Moreno, Head of Research at CryptoQuant.

Investors are holding onto their most valuable crypto assets, including Bitcoin and Ethereum. This move signifies that large holders are not panicking and likely expect prices to increase after the cut. 

“For BTC and ETH, it seems that investors are expecting a rally as inflows into exchanges are at low levels–this means they don’t expect to sell,” Moreno added.

Meanwhile, money is flowing into stablecoins. Moreno explained that these assets are often used as cash on exchanges, which suggests that investors are getting ready to buy.

“Higher stablecoin deposits are the ‘dry powder’ of investors before deploying capital (buying),” he said.

On-chain data also shows that some investors are cashing out on their less valuable assets, like altcoins. This indicates caution or a strategic move in preparation for the main event. 

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Most of the data aligns with how crypto markets have historically reacted to interest rate cuts. Lower borrowing costs have traditionally encouraged investors to seek higher returns in riskier, more speculative assets. 

The rate cuts between 2020 and 2021, following the COVID-19 pandemic, serve as a key example of how this financial easing fueled a historic bull run in cryptocurrencies. During that time, the influx of capital directly translated into an increased risk appetite among retailers. 

However, the relationship between interest rate cuts and the crypto market is not always linear.

A Politically Charged Decision

Powell’s announcement comes amid heightened tension between the Federal Reserve and the Trump administration. Since assuming office, Trump has repeatedly pressured the FOMC to cut interest rates, even trying to fire Fed Governor Lisa Cook.

Just yesterday, the Senate confirmed Stephen Miran, a former top economic advisor to Trump, to the Federal Reserve’s Board of Governors. 

These consistent pressures have drawn scrutiny over the Fed’s independence in its decision-making process. Whether Powell cut rates over the state of the economy or under executive pressure remains blurry. As such, experts remain divided over whether the cuts are even necessary. 

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If today’s decision was overwhelmingly taken out of political pressure, it will likely lead to higher inflation, eroding Americans’ purchasing power and causing the economy to overheat. This volatility will also lower risk appetite, drawing trading volumes away from the cryptocurrency market. 

That said, the American economy has been undergoing significant turbulence in recent months. 

What’s Next for the American Consumer?

Recent data has shown a decidedly soft job market with slower employment growth than previously estimated. Inflation also remains a significant concern.

The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, is expected to stay well above the central bank’s 2% target. This is partly due to Trump’s import taxes, which economists warn could further increase prices in the coming months.

The coming months will determine whether this fresh round of interest rate cuts will effectively balance the Fed’s dual mandate of maximum employment and price stability. They will also be key in determining whether the crypto market will stand to profit this time.

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