Original Title: "After the Fed's Hawkish Rate Cut, the Cryptocurrency Market Sees an Overall Correction"
Original Author: Alvis, MarsBit
At the latest Fed policy meeting last night, the benchmark policy rate was cut by 25 basis points to the range of 4.25%-4.5%. Although this result was in line with market expectations, the hawkish rhetoric in the statement and the adjustment of economic forecasts had a profound impact on market sentiment, leading to a significant correction in the overall cryptocurrency market. Prices of mainstream and Altcoins such as Bit, ETH, Dogecoin, and Solana all fell significantly.
The Fed Sends Hawkish Signals, Triggering Market Turmoil
Fed Chair Jerome Powell clearly stated at the press conference that although this rate cut was in line with market expectations, the frequency and magnitude of future rate cuts may be much lower than the market had previously assumed. Powell emphasized that the Fed only plans to cut rates twice in 2025, and also raised its inflation forecast for 2025 from the previous 2.1% to 2.5%. This adjustment reflects the Fed's deep concern about future inflationary pressures.
Powell specifically mentioned the uncertainty of future economic policies, including the protectionist policies that the incoming Trump administration may implement, such as imposing tariffs on imported goods, large-scale deportation of undocumented workers, and the potential expansion of fiscal deficits, as important reasons for the Fed to maintain a more cautious stance. These potential policy changes may further exacerbate inflationary pressures and have a broad impact on the market.
Bit Leads the Decline, the Crypto Market Under Pressure
The Bit price quickly fell 5.6% to $100,000 after the Fed announced the rate cut, but has since rebounded somewhat.
The decline in ETH was more pronounced, falling 6.96% to $3,600. Altcoins such as Dogecoin and Solana were also not spared, with Solana falling more than 7% and Dogecoin, due to its high volatility, falling more than 8%. The broader Altcoin market performed particularly poorly, with some second- and third-tier assets falling more than 10%.
According to Coinglass data, in the past 24 hours, a total of 236,199 people were liquidated globally, with a total liquidation value of $672 million. The largest single liquidation occurred on Binance - ETHUSD_PERP, worth $4.0677 million.
Crypto analyst Skew pointed out that the rapid decline in Bit has cleared out the long and short positions in the market, indicating that the market has entered a deep correction period. Bit price once fell to the key bidding zone of $100,000 to $98,000, and analysts believe that if it fails to reclaim the support of $100,000 to $101,400 before the daily close, the market may continue to search for a new bottom.
Economic Forecasts Highlight Inflation Risks, Dot Plot Shows Policy Determination
The economic forecasts presented at this meeting clearly demonstrate the Fed's policy considerations. The Fed has raised its economic growth forecasts for 2024 and 2025, while lowering its unemployment rate forecast, and significantly raising its inflation forecast. Particularly noteworthy is the large upward revision of the 2025 inflation forecast, indicating the Fed's high degree of concern about long-term inflation risks.
The dot plot shows that the Fed may only cut rates twice in 2024. This cautious policy stance not only demonstrates its firm determination to control inflation, but also leads the market to re-evaluate the future liquidity environment. The US dollar and the volatility index (VIX) rose sharply on this signal, while US Treasuries, US stocks, gold, and the cryptocurrency market generally came under pressure.
Short-term Outlook: The Crypto Market Faces Continued Adjustment
Against this macroeconomic backdrop, the cryptocurrency market may continue to face pressure in the short term. Whether mainstream assets such as Bit and ETH can hold key support levels will have a significant impact on market confidence. At the same time, the performance of Altcoins such as Solana and Dogecoin may be more volatile, as these assets tend to be more sensitive to market fluctuations.
Powell repeatedly mentioned the uncertainty of the economic outlook at the press conference and reiterated that future policy adjustments will be data-dependent. In the context of an increasingly complex global macroeconomic environment, investors need to carefully evaluate their crypto asset allocation strategies and closely monitor upcoming economic data to assess the medium- and long-term trends in the market.
Although the current market sentiment is gloomy, analysts generally believe that this round of adjustment also provides strategic deployment opportunities for patient long-term investors. The price correction of mainstream crypto assets may lay the foundation for future upside, while some Altcoins that have been oversold may have more room for rebound when the market recovers.
Excerpt from Powell's Statement:
Recent indicators suggest that economic activity continues to expand at a solid pace. Since the start of this year, labor market conditions have generally eased, with the unemployment rate having risen somewhat but remaining at a relatively low level. Inflation rates have moved towards the Committee's 2 percent objective, but remain slightly elevated.
The Committee is seeking to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to its dual mandate are broadly balanced. The economic outlook is uncertain, and the Committee is attentive to the risks to its dual mandate in both directions.
To support its goals, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 4.25% to 4.5%. In determining the extent and pace of any further adjustments to the target range for the federal funds rate, the Committee will assess incoming information and the evolving outlook and risks. The Committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the incoming information and its implications for the economic outlook. The Committee is prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessment will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting in favor of the monetary policy action: Chair Jerome Powell, Vice Chair John C. Williams, Thomas Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana Kugler, and Christopher J. Waller. Nay: Beth M. Hammack, who preferred to maintain the federal funds rate target range at 4.5% to 4.75%.
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