Fed Sees Just One Rate Cut This Year; Bitcoin Gives Up Session Gains

The Fed has kept policy steady but expects only one rate cut this year, compared to its previous forecast of three.

Bitcoin gave up its big gains at the beginning of the session following the Fed’s hawkish stance.

As expected, the Federal Reserve’s Federal Open Market Committee on Wednesday kept its benchmark federal funds rate in the 5.25%-5.50% range, but its economic outlook now calls for just a 25 basis point cut this year.

“There has been modest progress toward the Committee’s 2 percent inflation target in recent months,” the FOMC said in its policy statement. The “modest” statements are notable because the previous policy statement complained about a “lack of progress” on reducing inflation.

Having updated its economic forecasts, the Fed’s median expectation of the Fed funds rate for the end of 2024 is now at 5.1%, compared to 4.6% three months ago. This means the central bank expects a rate cut of only 25 basis points this year, compared to a previous rate cut of 75 basis points. Fed funds’ 2025 year-end expectation is currently 4.1%, indicating that interest rate cuts next year will be 100 basis points.

Fed Chairman Jerome Powell said in a press conference after the meeting that inflation is still very high and the central bank is focusing on returning this indicator to the 2% target.

The US Consumer Price Index May report, released earlier today, showed an unexpected slowdown in inflation last month. The news sent crypto, stock and bond markets sharply higher as investors raised expectations for the Fed to begin interest rate cuts.

The hawkish turn in the Fed’s economic forecasts, later confirmed by Powell at the press conference, dampened the excitement of these recoveries. Bitcoin {{BTC}} has returned to a stable level of $67,300 over the past 24 hours at 19:00 UTC. US stock markets and bonds closed the day with gains, but remained well below session highs.

Update (19:15 UTC, 6/12/24): Added commentary and price reaction from Powell’s press conference.