Bitcoin (BTC) fell sharply after the US Federal Reserve announced its key interest rate would remain unchanged, suggesting traders see the cryptocurrency as an asset that responds negatively to “hawkish” central bank events.
Although investors were not expecting the Fed to raise its federal funds rate from the 4.25%-4.50% established in December, it didn’t hint at movement towards any scenario in which it would cut the cost of borrowing either. In the absence of a more “dovish” tone about the state of the economy, and with no signal that monetary conditions were easy, more than $2,000 was shaved from the value of the coin.
Bitcoin dropped 1.8% to $115,728.49 between 18:00 UTC and 19:06 UTC as the initial statement hit the wire and as Chair Jerome Powell gave accompanying commentary at a press conference.
What drove the drop?
A handful of items in the statement did not fit with scenario in which crypto would rally:
- The Fed said the growth of economic activity “moderated” in the first half of the year – cautious language compared with the 3% inflation-adjusted second-quarter GDP (gross domestic product) released earlier in the day.
- Furthermore, inflation remains “elevated” – this suggests the Fed subscribes to the view that Trump’s tariffs are adding costs to companies that import materials and goods, inflating the price for the consumer. That’s not an environment in which the Fed would necessarily cut rates to stimulate borrowing and spending. The Fed also has a target to keep inflation at 2%.
- It was non-committal about its next meeting: "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
No decisions about September
Powell added the following remarks afterwards:
- “It seems to me — and to almost the whole committee — that the economy is not performing as though restrictive policy is holding it back inappropriately”.
- “For the time being, we’re well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance.”
- “We have made no decisions about September”
The Fed’s next Federal Open Market Committee (FOMC) meeting is on 16-17 September.
