Federal reserve maintains interest rates amid economic uncertainty as crypto market awaits future policy moves
The Federal Open Market Committee (FOMC) made a significant decision to maintain the benchmark federal funds rate between 4.25 percent and 4.50 percent while simultaneously decelerating its pace of quantitative tightening. This decision comes amidst ongoing economic growth, stable unemployment rates, and persistent inflation issues. Investors and economists are closely monitoring the effects of these policies on financial markets and the overall economy over the coming months.
Federal Reserve’s recent decision
In its first meeting since President Donald Trump returned to office, the Federal Reserve opted to maintain interest rates at their current levels. Additionally, the FOMC announced that starting in April, it will slow the reduction of its securities holdings by lowering the monthly redemption cap on Treasury securities from $25 billion to $5 billion. It will keep agency debt and mortgage-backed securities unchanged at $35 billion per month.
The U.S. Federal Reserve stated on Wednesday, “Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid. Inflation remains somewhat elevated. Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.”
The Federal Reserve’s statement emphasised several key economic indicators. The economy is still growing at a strong rate, and the unemployment rate is low and steady. However, inflation, although relatively high, continues to be an issue. Furthermore, there is greater uncertainty in the economic outlook due to global and domestic conditions.
Changes in quantitative tightening policies
The Fed’s action to delay the decline of its securities holdings is intended to avoid market turmoil. By limiting the Treasury securities redemption cap, the Fed is signalling a less aggressive stance on monetary tightening. This action will reduce some tension in financial markets and inject additional liquidity.
The FOMC has projected two rate cuts by the end of the year, leading to increased speculation about potential economic shifts. According to the CME FedWatch tool, there is currently an 18 percent (approx.) chance of a rate cut in May, with significantly higher odds for a reduction in June.
Trump administration’s influence on fed policy
President Trump has repeatedly urged the Federal Reserve to reduce interest rates, claiming that high interest rates hinder economic growth. However, Fed Chairman Jerome Powell has adhered to a data-driven stance, resisting political pressure. The administration’s trade policies, especially tariffs on China, Canada, and Mexico, continue to influence inflation and economic growth.
The role of international monetary policies
While the Federal Reserve is being cautious about implementing forceful monetary stimulus, other global players are already taking decisive measures. China issued 300 billion yuan in special treasury bonds last week to stimulate its economy, and European central banks have begun loosening monetary policies to counter economic slowdowns.
Risk assets like cryptocurrencies saw renewed interest following the FOMC’s announcement. Bitcoin, Ethereum, and Solana all experienced notable price increases. Additionally, Ripple’s legal victory against the SEC provided further optimism in the crypto market.
