[NEWS] FOMC's interest rate cut to stimulate cryptocurrency market

The Federal Open Market Committee (FOMC) decided to cut the key policy interest rate by 0.5 percentage points at its regular meeting held on September 17-18.

The policy shift aimed at restoring the US labor market kicked off with a positive start.

In economic forecasts released after the meeting, 10 of the 19 officials indicated they would cut the interest rate by another 0.5 percentage points at the two remaining meetings this year.

In a statement after the meeting, the FOMC said, "Recent indicators suggest that economic activity continues to expand at a solid pace. Employment growth has slowed and the unemployment rate has risen but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated. The Committee aims to achieve maximum employment and 2 percent inflation over the long term. Risks to achieving its employment and inflation objectives are balanced. The economic outlook is uncertain, and the Committee remains vigilant against risks to both sides of its dual mandate." In light of the progress on the inflation front and the balance of risks, the Committee is lowering the target range for the federal funds rate by 0.5 percentage point to 4.75-5 percent. The Committee will also continue to reduce its holdings of Treasury securities, agency debt, and GSE-guaranteed mortgage-backed securities. Chairman Powell, Vice Chairman Williams, Governor Barkin, Federal Reserve Board Vice Chairman Barr, Governor Bostic, Governor Cook, Governor Daly, Governor Mack, Vice Chairman Jefferson, Governor Kugler, and Governor Waller voted in favor of this monetary policy measure.

Voting against the decision was Governor Bowman, who supported lowering the target range for the FF rate by 0.25%.

Following the decision to lower interest rates and the hint of further rate cuts this year, financial traders are becoming more bullish about the pace of future rate cuts. They expect there will be an additional 0.7 percentage point cut in the two remaining meetings.

US Treasury prices, which had been on track for a fifth consecutive month of increases in September, fell following the FOMC decision and Chairman Powell's remarks. Before the announcement of the policy decision, the majority of people were of the opinion that the rate would be reduced by 0.25 percentage points.

Cryptocurrency market to be revitalized

With the aggressive easing, stocks and cryptocurrency markets also rose overall. Mark P. Bernegger, co-founder of cryptocurrency fund AltAlpha Digital, said in a statement that the cut in the federal funds rate would increase liquidity, which would lead to increased demand for riskier assets and cause cryptocurrency prices to rise.

"We expect the cryptocurrency market to be revitalized, as lower interest rates tend to increase liquidity and make riskier assets, especially cryptocurrencies, more attractive to investors," he said.

After the FOMC statement, the price of Bitcoin (BTC) rose from the $59,000 range to the $62,000 range.

Reference: Nikkei Newspaper
Image: Shutterstock

Related articles:

FOMC maintains 3 interest rate cuts in 2024; growing optimism leads to sharp rise in cryptocurrency prices

Looking back at the Bitcoin market in April and outlook for the future; the biggest focus is on the FOMC in June and the next interest rate cut period; Masamichi Matsushima, Monex Securities