Key Insights:
- The Fed’s decision to hold rates may disappoint crypto markets.
- Inflation data shows progress, but the Fed remains cautious.
- Crypto traders had hoped for rate cuts to boost prices.
The U.S. Federal Reserve is virtually sure to leave interest rates unchanged at its next meeting on June 18. This is despite growing political pressure and stimulus demands once again. As the CME FedWatch tool indicates, markets presently attribute a 99.7% likelihood that the Fed will keep the existing target range of 4.25% to 4.50%. Just a narrow 0.3% probability of a hike is priced, and no cut is anticipated.
This information is strikingly dissimilar to the optimism surrounding crypto circles. Influencers proclaim that a rate reduction would free up “trillions” of capital moving into digital possessions. That story has been circulating on social media since the release of the May Consumer Price Index (CPI), which was 2.4%. This is a little bit lower than expected. But the opinion of the Fed is clear. They say that inflation is decreasing, but it is still higher than 2%. According to them, cutting interest rates prematurely may jeopardize years of gains. This comes as the FED experiences more and more uncertainty.
CPI Surprise Fuels Speculation, Not Action
The print of CPI has been the focus of the new argument. Some viewed the decrease in the annual inflation rate to 2.4% in May as an indication that inflation is being tamed. Still, it was marginally lower than the rates experienced in April. The core inflation, excluding food and energy, was also stable at 2.8% month on month. This had been speculating that the Fed would be the next to cut rates following the European Central Bank.
However, Fed Chair Jerome Powell and his co-workers have constantly underlined that they would rather proceed with caution. Although the Trump administration has recently imposed tariffs, which are currently on hold, inflationary risks are still present, and the Fed is not willing to pivot based on a single data point. Restraint also has historical precedent. Inflation has just recently decreased from the post-COVID peaks, and the Fed is willing to see continued evidence before making a change.
Central banks in Europe and China have already started reducing their interest rates to boost their economies. However, the U.S. is an exception. In the Eurozone and in China, interest rates have been dropping significantly over the past few months. Conversely, the Federal Reserve’s adequate funds rate has been steady, reflecting the firming up of economic fundamentals. It has also reflected concerns of inflation in the U.S.
This discrepancy lessens the odds of a worldwide easing cycle and moves the Fed even further out of reach of crypto-driven speculation regarding the impending liquidity injections. At best, the Fed’s current direction implies that rate cuts might not come until later in 2025, depending on further moderation of inflation and signs of economic relaxation.
Implications for Crypto: Curb Your Enthusiasm
The crypto market, which is usually vulnerable to changes in monetary policy, has displayed a subdued reaction to the recent inflation statistics. Even though confident investors speculate that reducing rates or increasing liquidity will result in a significant rise in the prices of Bitcoin and altcoins, the existing conditions do not support such action.
Powell’s tone remained firm. He avoided dovish language, and his remarks suggested no immediate easing. Political calls for stimulus failed to sway the central bank’s stance.
Speculation among crypto influencers continued. Some cited historical patterns linking easing cycles with Bitcoin rallies. Yet, the Fed’s current policy trajectory offered little evidence that such a move was imminent.
In short, the crypto community may need to temper expectations. As long as inflation stays above 2% and the economy avoids recession, the Fed appears determined to wait.
Disclaimer
This article is for informational purposes only and provides no financial, investment, or other advice. The author or any people mentioned in this article are not responsible for any financial loss that may occur from investing in or trading. Please do your research before making any financial decisions.
Brenda is additionally a news writer on the coin chapter. Brenda commits to producing excellent, well-optimized content to ensure consumer satisfaction. She has developed expertise in technical analysis and price forecasting of breaking blockchain news while at the coin chapter. Additionally, she enjoys engaging in stock markets and investing in cryptocurrencies.
