In the early morning of Thursday (March 21) Beijing time, the Federal Reserve announced that it would maintain the benchmark interest rate at a range of 5.25%-5.50%, keeping interest rates unchanged for the fifth time in a row, in line with market expectations.
More notable, however, are the Fed's plans for future rate cuts. Even as progress in lowering inflation has stalled, the Fed is sticking to its previous forecast of three rate cuts by the end of 2024. The interest rate dot plot shows that the median expected federal funds rate from 2024 to 2026 is 4.6%, 3.9%, and 3.1% respectively.
At the press conference, Federal Reserve Chairman Powell stated that although the CPI and employment data in the past two months have not significantly cooled down inflation, they believe that the trend of stable price decline has not changed. While unable to elaborate on the timing of a rate cut, Powell said he expects a rate cut to come soon as more confident data emerges.
The Fed's post-meeting statement was nearly identical to its January statement, maintaining guidance that a rate cut would not be appropriate until officials have more confidence that inflation is sustainably moving toward its 2% target. But the Fed removed language from its January statement about a "slowing" in job growth when describing labor market conditions.
In fact, before the announcement of this interest rate decision, investors were originally worried because they were afraid that higher-than-expected inflation data would make the Federal Reserve more cautious and even lower its expectations for an interest rate cut in 2024.
As the results came out, most officials maintained their decision to cut interest rates three times this year, which also reassured the market. Risk assets such as gold, stocks and Bitcoin have generally risen since the announcement, and the gains were further established after Powell's speech.
Gold investors are breathing a sigh of relief, with some new buying momentum emerging in the market. The three major U.S. stock indexes collectively closed higher. The Dow initially closed up 1.03%, the S&P 500 rose 0.89%, and the Nasdaq rose 1.25%, all hitting new closing highs. The U.S. dollar index (DXY), which measures the strength of the U.S. dollar against other major currencies, was higher than during the session. The index fell nearly 0.7%, indicating that investors' risk appetite has increased.
Bitcoin reversed higher, hitting an intraday high of $68,240, having fallen to $60,775 earlier in the day. Ethereum also recovered from an 8% loss earlier in the day to trade back to $3,560. The top ten currencies have generally risen in the past 24 hours, with Solana, DOGE, LTC and BCH leading the gains among mainstream altcoins.
Owen Lau, executive director of Oppenheimer, said: “There is an inverse relationship between interest rates and Bitcoin prices. When the Fed raises interest rates, it removes liquidity from the market, which has a negative impact on Bitcoin and technology stocks. However, when the Fed cuts interest rates, it provides liquidity to the market, which should benefit risk assets like Bitcoin. The way Bitcoin trades at times is like a high-beta tech stock, which encompasses almost everything.”
Zach Pandl, managing director of Grayscale Research, predicted in a report that the upcoming situation could support the price of Bitcoin. Pandl believes: "If interest rate cuts remain the base case, the cryptocurrency outlook still looks favorable. A soft landing in the economy, Fed rate cuts, and a contentious presidential election should be a supportive macro backdrop for Bitcoin."
Over the past week, Bitcoin has experienced a 15% drop. Bitcoin’s recent weakness is mainly due to traders starting to take profits and Bitcoin ETF cooling momentum. According to data from BitMEX Research, the total net outflow of Bitcoin ETF on Monday was US$154.4 million. This is the first time since March 1 that the ETF has recorded net outflows.
Citi analyst Alex Saunders said in a report on Wednesday: "The ETF-led rally has at least temporarily stalled as net inflows began to slow. Since listing, spot Bitcoin ETF inflows have totaled $12 billion, but in Slowing inflows could lead to weaker price action following Bitcoin’s recent all-time highs.”
Vijay Ayyar, vice president of international markets and growth at cryptocurrency exchange CoinDCX, said that in the previous Bitcoin bull market, when the market started to heat up, a 20%-30% correction was normal, but if Bitcoin falls below 60,000 The threshold of the US dollar may weaken further and test the level of US$50,000 to US$52,000, which will be the bottom line to maintain this bull market.
Ruslan Lienkha, head of markets at YouHodler, said Bitcoin prices will continue their long-term upward trend and viewed the recent correction as a “breather” ahead of Federal Reserve Chairman Powell’s speech today, saying: “Before the next price rally to all-time highs, We may see prices consolidate for a while, trading around $10,000 above and below current levels. So now is just another opportunity for long-term investors to accumulate long positions.”
Summarize
Overall, the Federal Reserve kept interest rates unchanged and maintained its guidance for rate cuts, which stabilized market sentiment to a certain extent. Bitcoin and other risk assets performed well on the news. However, Fed Chairman Powell also admitted that inflation has been stickier than expected in the past two months and should not "ignore data we don't like." Therefore, investors still cannot take it lightly and need to pay close attention to future economic data and the Federal Reserve's decisions.
