Federal Reserve holds interest rates steady at 5.25%, pauses hikes

In this post:

  • The Federal Reserve kept its key interest rate unchanged at 5.25%, pausing further hikes despite recent inflation.
  • The Fed reduced its forecast from three rate cuts to just one this year, which may disappoint markets expecting more.
  • Analysts expect short-term volatility in Bitcoin and stable ETF flows, with the global trend towards monetary easing likely supporting asset prices.

On Wednesday, the Federal Reserve decided to keep its key interest rate unchanged at 5.25%. This pause follows a recent uptick in inflation earlier in 2024. Markets were hoping for two rate cuts, but the Fed scaled back to just one. This decision might frustrate investors who expected more aggressive cuts after encouraging inflation data earlier.

Also Read: U.S. inflation drops to 3.3%, beating forecasts

In a statement after its two-day meeting, the central bank said it recognized some gains in its ongoing fight to control inflation. Inflation has been a huge challenge for Americans over the past three years. “In recent months, there has been modest further progress toward the Fed’s 2 percent inflation objective,” the statement reads.

Fed makes low progress toward inflation goals

Back in May, the Fed noted a lack of progress in curbing price increases. However, recent data showed inflation cooling more than expected. Despite this, the central bank reiterated that it doesn’t see it fit to reduce the target range until it gains more confidence that inflation is moving sustainably toward its 2% goal. Currently, inflation runs at about 3% to 3.5%.

Fed Chair Jerome Powell emphasized the need for more solid data to boost confidence that inflation is on a sustainable path to 2%. “We want to see more good data to bolster our confidence that inflation is moving sustainably toward 2%,” Powell said.

Federal Reserve holds interest rates steady at 5.25%, pauses hikes
Source: US Bureau of Labor Statistics

The inflation report on Wednesday showed some promising signs. Overall, inflation was flat in May. Powell acknowledged this progress, stating, “We see today’s report as progress and building confidence. This is a step in the right direction but it really is only one reading.” He added, “We hope we get more like it.”

Crypto markets face volatility after US economic data

In an email to Cryptopolitan, Bitfinex analysts predict that Bitcoin will experience short-term volatility as the market adjusts to the Fed’s decision. However, the overall trend could remain bullish if the broader economic outlook improves. Historically, three of the last four CPI prints have led to local tops for Bitcoin, indicating potential volatility around such announcements.

Also Read: U.S. senators urge Federal Reserve to cut interest rates

ETF flows are also expected to stabilize with this hold decision. Investors will likely wait for clearer signals from the Fed’s future policy moves. Spot Bitcoin ETFs might see steady inflows, but the momentum could be less pronounced than in a rate-cut scenario.

Globally, central banks have already started to cut rates, suggesting a broader trend towards monetary easing. The Bank of England and the Federal Reserve are likely to follow this trend in the coming months. Bitfinex analysts added, Bitcoin could consolidate around current levels or experience moderate gains as investors remain optimistic about future rate cuts in the U.S. later in the year.

Cryptopolitan reporting by Jai Hamid

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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