Fed Cuts Interest Rates by 50 Basis Points, BTC Surpasses $62,500: A New Cycle Is Beginning
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Fed Cuts Interest Rates by 50 Basis Points, BTC Surpasses $62,500: A New Cycle Is Beginning
Amid the impact of interest rate cut news, the crypto market surged, with BTC breaking above $62,500, outperforming both U.S. stocks and physical gold.
Navigating Web3 tides with focused insightsAuthor: Climber, Jinse Finance
On September 19, Beijing time, the Federal Reserve officially announced a 50-basis-point cut to the federal funds rate, lowering it to a range of 4.75%-5.00%. This marks the first rate reduction since March 2020. Following the announcement, the crypto market surged, with BTC breaking above $62,500, outperforming both U.S. equities and spot gold.
More importantly, multiple institutions and experts suggest that this 50-basis-point cut in September is just the beginning. Further rate cuts are likely before year-end, potentially totaling 76 basis points by the end of 2024.
First Rate Cut in Four Years, Crypto Market Shines
This rate cut comes after a four-year wait, but financial markets reacted differently around the announcement. All three major U.S. stock indices turned negative, erasing gains made since the Fed's rate decision was revealed. Spot gold also fully gave back its post-announcement rally. In contrast, the crypto market rallied across the board, with BTC briefly surpassing $62,500.
Brad Bechtel, Global Head of FX at Jefferies, noted that market expectations were nearly split before the Fed’s decision. Therefore, the Fed clearly surprised half the market. The central bank is trying to act before the U.S. economy slows further and provide support. However, so far, the market reaction hasn't been overly dramatic—much of it was already priced in.
Following the Fed's rate cut, Hong Kong's Monetary Authority also lowered its base rate by 50 basis points to 5.25%, while the Louisiana state government agreed to accept Bitcoin for payments.
Fed Chair Powell stated that the Fed is not declaring victory on inflation yet, but economic conditions are becoming more optimistic. This adjustment will help sustain strength in both the economy and labor market.
Regarding conditions for future cuts, Powell emphasized that nothing in their projections suggests the Fed is acting hastily. The Fed can speed up, slow down, or pause rate cuts as appropriate. If the economy remains robust, they can slow the pace; if the labor market deteriorates, they can respond accordingly. Their forecasts are not plans or decisions, and policy will be adjusted as needed. Considering overall risks, they decided today to cut rates by 50 basis points.
The Fed's decision has sparked widespread market discussion, with divergent views among institutions.
Nick Timiraos, known as the "Fed whisperer," said the Fed voted 11-to-1 to cut rates by 50 basis points—the first such cut since 2020—marking a bold start to easing. The new target range for the federal funds rate is now 4.75% to 5.00%. Updated quarterly projections show most officials expect at least a 25-basis-point cut at each of the November and December meetings. This move firmly places the Fed in a new phase: attempting to prevent last year’s aggressive hikes— which pushed borrowing costs to two-decade highs—from further weakening the U.S. labor market.
Timiraos added that the Fed is effectively making up for lost time. While some officials recently argued the economy isn’t weak enough to justify a 50-basis-point cut, others concluded that the summer cooling in the labor market justified a larger cut, as the Fed is catching up after delaying action.
Lindsay Rosner, Head of Multi-Sector Investments at Goldman Sachs Asset Management, said the Fed delivered what the market wanted. The market is satisfied. It still remains ahead of the Fed, expecting another 75 basis points of cuts this year (compared to the dot plot’s 50 basis points). With unemployment and PCE estimates very close to thresholds, the Fed could easily cut more than indicated in the dot plot.
Economist Mohamed El-Erian believes Powell doesn’t want to admit today’s move compensates for the Fed’s failure to cut in July.
Scott Helfstein, Head of Investment Strategy at Global X, said a 50-basis-point cut may be too aggressive. We’ve already seen the Fed front-run this cut, which might signal concern over economic weakness. Still, strong fundamentals in the coming weeks could calm markets and prevent capital outflows.
Carlos De Sousa, Emerging Markets Debt Portfolio Manager at Vontobel, said global financing conditions will continue to ease in the coming months, helping emerging market central banks maintain accommodative policies. This creates space for multiple EM central banks to restart or continue easing cycles they began before the Fed. Lower risk-free rates in developed nations will reduce external borrowing costs for EM issuers, lowering refinancing risks and improving debt sustainability. Easing cycles will encourage asset allocators to increase EM risk exposure as money market instruments and core developed-market yields lose appeal.
Will There Be More Cuts This Year?
After the Fed’s 50-basis-point cut, the biggest market question is when the next cut will come.
The median of the Fed’s dot plot indicates a total of 100 basis points in cuts for 2024. After the 50-basis-point cut in September, another 50 basis points are expected. For 2025, the forecast remains unchanged from June: another 100 basis points of cuts.
U.S. interest rate futures imply 76 basis points of total cuts by end-2024 and 196 basis points by October 2025.
Senator Elizabeth Warren criticized Powell—whom she has repeatedly faulted for hiking too fast and overseeing lax bank regulation: “This rate cut shows once again that Powell acted too slowly in lowering rates. The Fed has finally shifted course and begun fulfilling its dual mandate on prices and employment. Lower rates mean relief for consumers and aspiring homeowners. Further cuts are needed.”
CME's "FedWatch" tool shows a 62.2% chance of a 25-basis-point cut by November and a 37.8% chance of a 50-basis-point cut. By December, the probability of 50 basis points in cumulative cuts is 36.6%, 75 basis points is 47.8%, and 100 basis points is 15.6%.
"New bond king" Jeffrey Gundlach said long-term bond markets don’t want the Fed to pursue aggressive easing; the Fed isn’t as behind the curve as in the past. After the U.S. election, a 50-basis-point cut in November becomes more likely. Current data supports Powell’s view that the economy isn’t showing significant stress.
Adam Button, Chief Forex Analyst at Forexlive, said Powell has been dovish throughout his tenure, and he reinforced that today. Clearly, Powell doesn’t want to fall behind the curve in this easing cycle and chose a preemptive approach. He made it clear at Jackson Hole that he doesn’t want to see further labor market deterioration. If employment data weakens further, another 50-basis-point cut in November is possible. Until recently, markets believed in "American exceptionalism"—that U.S. growth would outpace others and rates would stay higher. Now it’s clear the Fed will cut as fast as—or faster than—other G10 central banks. Thus, if the Fed continues, the dollar has significant downside potential. Overall, this cut was a bold move, and I believe history will judge it correct. Bond markets suggest the inflation fight is won, and rates could fall all the way to 3% before the Fed needs to pause.
Tom Hainlin, Senior Investment Strategist at Bank of America, said the Fed’s rate cuts aim to protect employment, and two more cuts are likely. They have no strong preference between 25- or 50-basis-point cuts, so they wouldn’t be surprised either way. Looking ahead, at least two more cuts should be expected by year-end. As inflation moves closer to target, it’s unsurprising Powell focuses on employment, concerned about underlying downside risks in the labor market.
Signs suggest the labor market may be weaker than data shows. Thus, this appears to be a form of insurance against rising unemployment and to keep the economy running smoothly.
Conclusion
The Fed’s latest rate cut brings renewed hope to financial markets, especially the crypto sector. Cryptocurrencies led by Bitcoin performed exceptionally well, reaffirming the vibrant potential of emerging assets. Most encouragingly, multiple institutions broadly expect continued rate cuts this year, signaling that a new cycle for the crypto market is already underway.
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