Inflation concerns persist, Fed rate cuts impact Bitcoin and stock markets

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Bitcoin is often touted as a hedge against inflation, but after the Fed announced this news, Bitcoin plunged significantly, falling below $100,000 for the first time in weeks. The cryptocurrency dropped over 5%, but has since rebounded, down 3.21% in the past 24 hours and 8% from recent highs. Altcoins performed worse, with Ethereum and Solana down over 4%, and Dogecoin down 7%. Compared to their respective peaks, BTC, ETH, SOL, XRP, DOGE, and HYPE are down -8%, -11%, -23%, -13%, -23%, and -17%, respectively.

The Fed's dot plot reflects policymakers' expectations for future interest rates, showing a reduction in the forecast for rate cuts next year from four to two. According to Reuters, Powell emphasized that further rate adjustments will depend on measurable progress in curbing inflation, with expectations that inflation will remain above the 2% target until 2025.

The Fed initiated a loosening cycle in September with a 50 basis point (bps) rate cut, followed by a 25 basis point cut last month. The Fed chairman pointed out that inflation has improved from its peak in 2022, but warned that core inflation, particularly housing costs, remains difficult to overcome. "The degree and timing of any additional adjustments to the target range will depend on upcoming data, evolving outlooks, and risk balances," Powell stated, indicating that the Fed will proceed cautiously.

For the cryptocurrency market, the message is clear: a long-term tightening of monetary policy will pose significant resistance to digital assets, especially speculative altcoins.

With inflation still above target and expectations for a slowdown in the rate-cutting process, the cryptocurrency market will face greater volatility in the short term. Friday's inflation data and the Fed's January meeting will provide further clues about the direction of monetary policy.

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