TL;DR:
- Bitcoin and Ethereum stalled or fell slightly following the Fed’s third consecutive 25 basis point rate cut.
- The Fed did not commit to further cuts in the new year but will resume buying short-term Treasury bills.
- Uncertainty increases with the possible nomination of a new, more pro-crypto Fed Chair favoring rapid cuts.
The Federal Reserve cut its interest rates and the market reacted immediately. This Wednesday, the price of Bitcoin and Ethereum registered mixed movements; the pioneering crypto traded at $92,000, recording a 1.4% drop during the day, while Ethereum modestly rose 0.6% to trade just above $3,300.
The market’s reaction occurred despite the Fed’s measure, which also announced the resumption of short-term Treasury bill purchases. The central bank justified the decision by citing concerns over a weakened labor market, as recent reports pointed to stagnating job creation and a sharp decline in manufacturing, exacerbated by a lack of key government data due to a recent shutdown.
Fed Dynamics and the Future of the Chairmanship
Despite the market impact of the Fed’s cut, the Federal Open Market Committee (FOMC) did not explicitly commit to further cuts for the next year, stating it will “carefully assess incoming data, the evolving outlook, and the balance of risks.”
However, the FOMC did confirm that it will resume buying short-term Treasury securities “as needed to maintain an ample supply of reserves.” This decision was not unanimous; two members voted in favor of keeping rates unchanged, and another advocated for a larger cut.
This dissent reflects the difficulty the Fed faces in balancing the risks of still “sticky” inflation with the need to prevent a prolonged recession caused by a declining labor market.
Political uncertainty adds to the equation, as Fed Chair Jerome Powell’s term expired in May, and President Donald Trump is evaluating his replacement. The President signaled that a candidate’s willingness to immediately cut interest rates serves as a litmus test.
There is a favorite to fill the position: National Economic Council Director, Kevin Hassett. Analysts at Compass Point suggest that a decidedly pro-crypto Fed Chair like Hassett, whose report on digital asset regulation is extensive, could “accelerate blockchain’s integration into the banking system.”
The market has priced in a 73% probability that Hassett will be nominated before March. Therefore, cryptocurrency traders must closely monitor not only the upcoming economic data but also the nomination process in Washington, as new Fed leadership could have a much greater impact on the digital asset sector.
