Fed Cuts Rates To 4.25% — Will Bitcoin Rally Or Crash Before Weekend?

What Happened

The Federal Reserve has cut interest rates by a quarter percentage point, lowering the upper bound of its federal funds rate to 4.25%.

The move trims the target range from 4.50% to 4.25%, marking the Fed’s first rate cut since earlier this year.

The August report showed job growth nearly stalling, with June recording the first monthly losses in over four years. Unemployment rose to 4.3% in August, the highest level since 2021.

Market Context

The decision, which brings rates to their lowest level since November 2022, was widely expected by markets after weeks of weakening labor data and softer inflation readings.

Chair Jerome Powell and 10 other members of the Federal Open Market Committee (FOMC) backed the move, while one dissenting voice, Stephen I. Miran, favored a larger half-point reduction.

Labor market data has increasingly pointed to strain. Revisions released this week showed the economy created 911,000 fewer jobs in the year through March than initially reported.

Powell has previously described the labor market as facing “downside risks” that could intensify if layoffs increase.

At the same time, inflation has eased compared to earlier in the year but remains above the Fed’s 2% target. Wholesale inflation unexpectedly declined in August, with the Producer Price Index slipping 0.1% after a 0.7% rise in July.

The decision comes against a backdrop of tariffs that have pushed inflation higher in recent months. Consumer prices climbed to 2.9% in August after dipping to 2.3% in April.

Economists remain divided on whether tariff-driven increases will prove temporary or more lasting. Some warn that the combination of higher prices and rising unemployment could trigger stagflation, a scenario the Fed is attempting to avoid by balancing growth with price stability.

For crypto markets, the implications remain uncertain. Bitcoin and Ether have historically rallied on signs of easier monetary policy, but rising political tension and lingering inflation risks could temper gains.

More than $105 million was liquidated across crypto markets within an hour following Powell’s press conference on Thursday, with longs accounting for $88.8 million and shorts $17 million.

The sudden volatility dragged the global crypto market cap down 0.9% to $4.08 trillion. Bitcoin fell 1.2% in the past 24 hours to trade around $115,089, slipping 0.8% in the last hour. The asset now sits 7% below its record high of $124,128.

Earlier in the day, BTC had climbed above $117,000, its highest in four weeks, before Powell’s comments unsettled markets. Analysts warned of large liquidity clusters between $108,000 and $112,000, highlighting the risk of deeper corrections if sentiment turns hawkish.

Why It Matters

FOMC Trims Target Range by 25 bps, Citing Softer Jobs and Elevated Risks

Fed officials cited slowing economic growth, softer job gains, and rising downside risks to employment as key factors behind the decision.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the FOMC said in its statement, adding that uncertainty about the outlook “remains elevated.”

On an annual basis, PPI rose 2.6%, far below the 3.3% expected by economists. The weaker-than-forecast print reinforced expectations that the Fed would cut rates this week, sending Bitcoin higher in the days leading up to the decision as traders bet on looser monetary policy.

Despite political drama surrounding the meeting, Fed officials projected slightly faster economic growth than previously estimated while leaving unemployment and inflation forecasts unchanged.

Their long-term outlook signals a gradual path toward a neutral rate of around 3%, with additional cuts penciled in for 2026 and 2027

Details

Political pressure has also loomed large over the Fed. President Donald Trump has repeatedly called for deeper cuts, accusing Powell of moving “too late” and demanding aggressive easing to support housing and reduce government financing costs.

On social media, Trump dismissed the Fed chair as “a total disaster” and pressed for bigger reductions. Miran, a Trump appointee, aligned with this position, voting for a half-point cut.

Traders are watching Powell’s press conference at 2:30 p.m. ET for further guidance on the Fed’s next moves.

$105M Liquidated in Crypto After Powell Press Conference as Bitcoin Slides