The Federal Reserve has made a measured move by reducing its interest rates by 0.25%, bringing the target range from 4.75% – 4.5% to 4.5% – 4.25%.
However, this cautious approach comes with a warning: inflation may not return to the Fed’s 2% target until 2026.
Meanwhile, Chair Jerome Powell addressed ongoing speculation about Bitcoin, firmly dismissing the notion of the Fed owning cryptocurrency.
Federal Reserve Lowers Rates But Warns Inflation Progress Will Take Time
The Federal Reserve’s 25 basis point rate cut marks its third reduction this year, reflecting its attempt to balance inflation control with economic growth.
Chair Jerome Powell emphasized that while inflation has slowed from earlier peaks, the 2% target remains elusive, with progress expected to extend over the next two years.
The November inflation rate of 2.7% underscores this challenge, as underlying pressures in sectors like housing and services keep price stability at bay.
Powell characterized the latest decision as a “closer call,” highlighting the difficulty in navigating economic uncertainties. He explained that moving too quickly risks stalling economic growth while being too slow could prolong inflationary pressures.
“We aim to strike a balance between fostering employment and ensuring price stability,” Powell said, reinforcing the Fed’s dual mandate.
Revised projections for 2025 reflect the central bank’s careful approach, with policymakers now expecting only two rate cuts instead of the previously forecast four. This shift signals the Fed’s intent to adapt its strategy based on incoming economic data.
Powell noted, “Our actual rate cuts will be determined by the conditions we observe, not by what we project today.”
In addition to inflation, the Fed is closely monitoring the labour market, which has shown signs of cooling without triggering alarm. Powell described the adjustments as gradual, noting, “The labour market is softening, but in a manner that doesn’t raise immediate concerns for economic stability.”
This tempered optimism underscores the Fed’s ongoing assessment of broader economic resilience.
Powell Dismisses Bitcoin Ownership Amid Speculation About the Fed’s Stance on Crypto
Jerome Powell used the press conference to address speculation regarding the Federal Reserve’s involvement with Bitcoin, particularly amid President-elect Donald Trump’s proposal for a U.S. Bitcoin Strategic Reserve.
Powell firmly stated that the central bank has no intention of holding Bitcoin, citing legal restrictions under the Federal Reserve Act.
“We’re not allowed to own Bitcoin, and we’re not seeking to change that,” Powell clarified. He stressed that any decision to enable such a move would rest with Congress, distancing the Fed from debates over the integration of cryptocurrencies into its policy framework.
Trump’s proposal has sparked discussions, with some envisioning a reserve funded by seized Bitcoin and Treasury assets. The news of Trump’s pro-crypto stance recently drove Bitcoin’s price past $100,000.
However, Powell’s remarks introduced caution to the market, leading to a dip as investors reacted to the Fed’s scepticism.
Powell also highlighted the volatility and limited utility of Bitcoin, reiterating the Fed’s concerns about its reliability as a currency.
“Our priority is to ensure economic stability using proven monetary tools,” Powell said, emphasizing the Fed’s focus on established methods rather than speculative assets.
The debate over Bitcoin reflects broader questions about the role of cryptocurrencies in national economies.
While some policymakers advocate for integrating digital assets, the Fed remains steadfast in its position, prioritizing traditional instruments to achieve its objectives.
Powell’s remarks reinforce this commitment, signalling that any shift in approach would require comprehensive legislative consideration.
Conclusion
The Federal Reserve’s cautious stance on interest rates reflects the complex economic landscape it faces, with inflation and labour market dynamics requiring careful navigation.
Powell’s measured tone underscores the central bank’s dual focus on supporting growth and achieving price stability without compromising long-term goals.
On the cryptocurrency front, Powell’s dismissal of Bitcoin ownership affirms the Fed’s commitment to its traditional mandate while maintaining scepticism about integrating volatile digital assets.
As stakeholders look to the future, the Fed’s steady approach provides a clear framework for addressing the challenges ahead.
