In a widely telegraphed move, the Federal Reserve lowered interest rates by 25 basis points on Thursday, marking the second consecutive rate cut since the global financial turmoil earlier this year. The federal funds rate now stands in a range of 4.5% to 4.75%. While the rate decision itself was largely a non-event for markets, it was Fed Chair Jerome Powell’s press conference that really gave investors something to chew on.
Speaking publicly for the first time since Donald Trump’s resounding victory in the 2024 U.S. presidential election, Powell sought to allay concerns that the outcome would prompt a hawkish turn from the central bank. “The election results have no effect on our policymaking in the near-term,” he unequivocally stated. The Fed chief noted that while some of the president-elect’s proposed economic policies could theoretically rekindle inflation, the Fed remains squarely focused on the current data.
Bitcoin Notches Fresh Record as Powell Speaks
As if on cue, the price of bitcoin leapt to a new all-time high of $76,951 while Powell sought to reassure markets. The largest cryptocurrency by market value has now gained over 190% year-to-date, far outpacing traditional inflation hedges like gold. The broader crypto market also caught a bid, with the CoinDesk 20 Index jumping 4.5%.
According to one crypto hedge fund manager, the post-Fed rally demonstrates that “bitcoin is increasingly seen as the hardest form of money in an era of fiat debasement.” He noted that the combination of loose fiscal and monetary policy, along with bitcoin’s mathematically enforced scarcity, is proving to be “rocket fuel” for the digital asset.
Wall Street Follows Crypto’s Lead
Not to be outdone, U.S. stocks also caught a strong bid as Powell’s remarks hit the wires. The benchmark S&P 500 index jumped 0.8% to notch a fresh record closing high, while the tech-heavy Nasdaq Composite surged 1.5%. Mega-cap tech stocks led the charge, with the likes of Apple, Microsoft, and Alphabet all gaining between 2% to 4% on the day.
The risk-on moves in both crypto and equity markets suggest investors are growing increasingly comfortable with the macro backdrop. While inflationary risks stemming from expansionary fiscal policy remain a concern, Powell & Co. have made it abundantly clear they will not overreact to near-term price pressures. “We want to see realized progress, not just forecast progress,” Powell stressed, echoing prior comments from his global central banking peers.
Hawks Head for the Exits
Indeed, with central bankers worldwide coalescing around a “lower for longer” interest rate regime, the likelihood of a hawkish policy mistake continues to diminish. Market pricing now reflects just a 28% implied probability of a Fed rate hike by year-end, down from 33% prior to today’s meeting. The prospect of an extended period of accommodative monetary policy, coupled with rebounding global growth, has emboldened investors to take on more risk across asset classes.
“We’re seeing clear signs of a regime shift in markets. Deflationary concerns are giving way to a ‘reflation’ mindset as policymakers pull out all the stops to revive growth. This is nirvana for risk assets like stocks and bitcoin.”
– Macro hedge fund CIO
To be sure, risks to the bullish thesis remain. A resurgence of the pandemic during the winter months could throw a wrench in the global economic recovery. Geopolitical tensions, particularly between the U.S. and China, also have the potential to flare up and roil markets. But for now, the path of least resistance for risk assets appears to be higher, with bitcoin leading the charge as the purest play on the “easy money” trade.
Key Takeaways
- The Fed cut rates by 25 bps to a range of 4.5% to 4.75%, as widely expected
- Fed Chair Powell said the U.S. election outcome will not impact near-term policy
- Bitcoin price hit a record high above $76,000 as Powell spoke
- Broader crypto and equity markets also rallied on the risk-friendly Fed outlook
- Expectations for a 2024 Fed rate hike diminished to 28% from 33%
As the dust settles on this consequential Fed meeting, one thing is abundantly clear: the “Don’t fight the Fed” mantra is alive and well. With policymakers telegraphing a lower-for-longer rate regime, investors are responding by piling into risk assets with increasing abandon. How long this “Goldilocks” environment for stocks and crypto can persist remains an open question. But for the time being, the wind remains firmly at the market’s back.
