The Federal Reserve has taken a surprising step by cutting interest rates by 25 basis points as of early 2025. This decision, which comes despite core PCE inflation remaining above 2.9%, highlights growing concerns over the labor market’s weakness. With this move, the Fed marks a historical moment, breaking a 30-year precedent of rate cuts during high inflation levels.
Why the Fed Cut Interest Rates
Fed Chair Jerome Powell addressed the economic landscape, stating, “The decision reflects mounting weakness in the labor market. Our priority is now on supporting jobs, while continuing to monitor inflation risks.” This acknowledgment signals a shift in the Fed’s priorities, putting employment above inflation.
Market Reactions: Stocks, Commodities, and the U.S. Dollar
Global financial markets responded quickly to the unexpected rate cut. The U.S. dollar weakened, hitting its lowest level since February 2022, while stocks and commodities surged. The S&P 500, sitting at record highs, remains on a bullish trend amid expectations of further monetary easing.
Meanwhile, the updated Fed dot plot reveals a split among policymakers. While the median forecast anticipates another 50 basis points of cuts before year-end, disagreements within the Fed reflect uncertainty about the future of monetary policy.
Concerns of Stagflation
Economic projections from The Kobeissi Letter raise concerns, forecasting unemployment to remain high at 4.3%-4.5%, while the Fed’s 2026 inflation outlook has been revised upward to 2.6%. This combination of weak labor markets and persistent inflation is reviving fears of stagflation—a scenario of stagnant economic growth combined with inflationary pressures.
What This Means for Cryptocurrencies
Cryptocurrencies are also reacting to the Fed’s monetary policy shift, with altcoins showing strong momentum. The Altcoin Season Index has risen above 75, indicating that major altcoins like Ethereum, XRP, Chainlink, and AI-related tokens are outperforming Bitcoin.
Analyst Michaël van de Poppe noted, “Liquidity is flowing into altcoins, and momentum is shifting in their favor.” Expert traders and holders are seeing this as a potential start of a powerful bull cycle for altcoins.
Risks Ahead
However, the road ahead is not free of risks. Markets are pricing in four additional rate cuts by September 2026. If the Fed decelerates the pace of monetary easing, both equity and crypto markets could face short-term setbacks. Nonetheless, for long-term investors, a mix of aggressive monetary policy and growing capital flow into cryptocurrencies could set the stage for a multi-year growth cycle.
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For more updates, keep following the latest cryptocurrency news, trends, and expert insights to make informed financial decisions.
