Decisive day for the Fed: What impacts if rates fall again?

The global economic landscape is at a critical stage. Each decision of the American Federal Reserve (Fed) becomes a key signal, closely observed by investors and financial analysts. In this context, the imminent announcement of a further cut in interest rates is triggering keen interest. As once galloping inflation begins to return to more controlled levels, the Fed plans to cut its key rate once again, this time to a range of 4.25% to 4.5%. This measure, which is part of an economic stabilization strategy, leaves no market indifferent. For cryptos, this announcement fuels both the hope of a more favorable monetary environment and the fear of increased instability. While bitcoin and Ethereum are already showing significant declines, investors are wondering about the future prospects.

A strategic decision at the heart of a delicate economic context

The US Federal Reserve has confirmed its intention to cut interest rates by 25 basis points, lowering the target range to 4.25% – 4.5%. This decision, which is part of a series of reductions that began last September, represents a cumulative adjustment of one percentage point over recent months. For many observers, this approach aims to support the economy in a context marked by inflation that is still far from the 2% objective. Indeed, although inflation has fallen significantly since its peak of 9.1% recorded in June 2022, it continues to pose a major challenge to the monetary authorities.

Jacob Channel, senior economist at LendingTree, on CBS NEWS December 17, 2024, explain that “if the Fed continues its plan with a 25 basis point reduction, it is unlikely that it will continue on this path in the short term.” This positioning reflects a measured approach, driven by the need to fully assess the impact of previous adjustments. Furthermore, the solid employment data, with 227,000 jobs created in November, reinforces the complexity of the situation. These performances, particularly in key sectors such as health and tourism, reflect a resilient economy, but add additional pressure on the Fed's strategic choices. While economists wonder about the possibility of further declines, the current stability of the job market gives contradictory signals which fuel the debates.

Cryptos: between immediate volatility and expectations of opportunities

The approach to the Fed's announcement has already caused marked volatility in crypto markets. Over the past 24 hours, bitcoin fell 2%, while Ethereum saw a 4% loss. The overall capitalization of the crypto market fell by 4%, and now reaches $3.8 trillion. This correction also affected major altcoins, including Solana and Binance Coin. Such movements reflect investors' uncertainty about the impact of imminent monetary adjustments, thereby reinforcing palpable nervousness within the sector.

In the longer term, however, rate cuts could provide a more favorable context for cryptos. Indeed, a relaxed monetary environment could stimulate investors' appetite for higher risk assets, including cryptos. However, the outlook remains mixed. Jacob Channel, warns that “current forecasts could be disrupted by a resurgence of inflation.” He also discusses possible revisions of economic strategies under the administration of Donald Trump, which could amplify the uncertainties weighing on the markets. These elements underline the need for investors to act with caution in a context still marked by gray areas.

The Fed's decision represents a pivotal moment for markets seeking stability and direction. For cryptos, this development represents both an immediate challenge and a future opportunity. In the short term, the increase in volatility reflects investors' uncertainties regarding monetary adjustments. However, if a stable policy were to continue, it could encourage a gradual return of capital to these assets. The future balance will depend on the ability of regulators to control inflationary tensions and adapt to global economic challenges, in an environment which remains marked by notable uncertainties.