Fed Keeps Interest Rates Stable – Bitcoin Loses Recent Gains

Despite recent signs of an easing in prices, the US Federal Reserve is only planning one interest rate cut this year. The monetary authorities around Federal Reserve Chairman Jerome Powell left the key interest rate in the range of 5.25 to 5.50 percent on Wednesday.

For 2024, they are forecasting on average only one further interest rate cut, while three cuts were planned in March. A few hours before the decision, they received current consumer price data that showed an unexpected drop in the inflation rate to 3.3 percent in May. Powell described this drop as encouraging, but stressed that further positive data was needed to ensure that inflation is moving sustainably towards the target of two percent.

Fed decision affects the price of Bitcoin

Powell remained vague about a rate cut expected by the financial markets for September: The Fed does not want to commit itself in advance. The signals from the central bank leadership are mixed: four of 19 monetary authorities do not foresee any rate cuts at all for 2024, seven are planning a cut, and the remaining eight are aiming for two interest rate cuts.

Powell explained that the monetary authorities had the opportunity to adjust their projections at short notice based on the new inflation data, but the majority decided against it. LBBW economist Elmar Völker concluded that the majority of US central bankers are still sticking to the prospect of a rate cut this year, but are signaling less potential for monetary easing: “An indication that the path to the first rate cut is longer than previously assumed.”

Powell confirmed this assessment to the press and said that the monetary authorities were surprised by the worse-than-expected inflation data in the first quarter. Now they must wait and see how inflation continues. The latest inflation data are “a step in the right direction,” but the Fed cannot react to just one data point.

Bitcoin gave up most of the gains it had made after the announcement of the new inflation figures following Jerome Powell’s press conference. The oldest cryptocurrency’s price was last quoted at $67,851.89. (As of 1:46 p.m.) Since the beginning of the year, Bitcoin has recorded a price gain of around 60 percent.

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(Featured image by  engin akyurt via Unsplash)

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First published in WirtschaftsWoche. A third-party contributor translated and adapted the article from tthe original. In case of discrepancy, the original will prevail.

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