Powell turns dovish, signaling three rate cuts next year, Bitcoin briefly surges above $43,000
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Powell turns dovish, signaling three rate cuts next year, Bitcoin briefly surges above $43,000
Powell has sent the clearest signal yet that monetary tightening has ended, with rate cuts "now entering the realm of consideration."
Navigating Web3 tides with focused insightsBy Mary Liu, TechFlow
On the afternoon of December 13, Eastern Time, the Federal Reserve kept interest rates unchanged in the current range of 5.25%-5.50%, marking the fourth pause in rate hikes this year following previous holds in November, September, and June.
More surprisingly, the Fed sent its clearest signal yet that a series of rate cuts are expected next year—exceeding economists’ expectations. The central bank now projects the federal funds rate to be just 4.6% by the end of 2024, down from the previous forecast of 5.1% three months ago, implying three quarter-point cuts over the coming year.
Following the announcement, Bitcoin rebounded above $43,000, gaining over 4% in 24 hours, though it has yet to reclaim its early-December annual high above $44,300. The global cryptocurrency market cap currently stands at $1.65 trillion, up 3.6% over the past day. Altcoins such as Avalanche (AVAX), Cardano (ADA), and Injective (INJ) surged nearly 10%.
In addition to the rate decision, the Fed released updated quarterly economic projections. Core inflation for 2023 is now projected at 3.2%, down from the prior estimate of 3.7%. The final inflation rate for 2024 is expected to reach 2.4%, revised downward from 2.6%. Meanwhile, real GDP growth for 2024 was trimmed from 1.5% to 1.4%.
Powell’s Dovish Pivot
Federal Reserve Chair Jerome Powell stunned economists during his press conference by sending the clearest signal yet that monetary tightening has ended, stating that rate cuts “are now in the realm of consideration.” Industry observers described the tone of the briefing as more dovish than anticipated.
“We’re seeing strong growth appear to moderate. We’re seeing the labor market come into better balance. We’re seeing real progress on inflation. These are all things we’ve been looking for,” Powell said.
Michael Feroli, economist at JPMorgan Chase, likened it to “a flight of twelve doves.”
NewEdge Wealth, an asset management firm, posted on X: “Just 12 days ago, Powell delayed speculation on rate cuts; now he reveals the FOMC is openly discussing future easing. Today’s meeting thus marks a genuine turning point for the Fed, with significant implications for financial conditions.”
Fed Decision and the Crypto Market
The Fed's interest rate decisions directly impact the cryptocurrency market by influencing investor behavior. When the Fed raises rates, traditional investment assets such as bonds and other fixed-income instruments become more attractive due to their stable returns. This often leads investors to shift capital away from volatile assets like cryptocurrencies, reducing demand and potentially triggering price corrections or declines.
Conversely, when interest rates fall, risk appetite increases, and capital begins flowing back from lower-volatility assets into equities and crypto markets.
Since March 2022, amid rising inflation, the Fed has tightened policy, raising rates from a low of 0%–0.25%, with the most recent hike occurring in July.
U.S. Treasury yields, particularly on 2- to 7-year securities, have declined by more than 15 basis points. These shifts suggest a potentially looser monetary policy ahead, indicating a favorable environment for growth in risk assets like Bitcoin.
Current rate futures indicate over a 60% probability of a rate cut by March 2024, a likelihood that jumps to 90% by May.
“Historically, holding steady or lowering rates tends to boost investor sentiment, as it implies greater disposable income and potential for increased investment across asset classes,” said analysts at Bitfinex. “This effect extends beyond traditional markets to newer assets like cryptocurrencies.”
ETFs and the Halving Catalyst
With growing expectations of rate cuts in 2024, potential approval of spot Bitcoin ETFs, and the upcoming Bitcoin halving in April, the momentum behind a Bitcoin price rally appears strong.
As previously reported by TechFlow, several major financial firms, including BlackRock (BLK.N), have filed applications with the SEC to launch spot Bitcoin ETFs. If approved, these products could unlock massive institutional inflows into crypto. U.S.-based crypto firm NYDIG estimates demand for spot Bitcoin ETFs could reach around $30 billion. Their calculation compares the sizes of gold and Bitcoin ETFs—$210 billion and $28.8 billion respectively—and adjusts for relative volatility.
The next Bitcoin “halving” is expected in April next year. This mechanism slows the issuance rate of new bitcoins, with the total supply capped at 21 million—of which about 19 million have already been mined.
CoinShares analyst Butterfill noted that Bitcoin rebounded after each of the previous three halvings, most recently in 2020. However, given differing market conditions today, it remains uncertain whether the same pattern will repeat. “If we combine strong U.S. ETF demand with reduced new supply, it could make an impact—but I remain cautiously optimistic,” he said.
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