The Federal Reserve has decided to reduce borrowing costs.
The Federal Reserve, the United States' central banking system, has made a significant move by cutting interest rates by 25 basis points, bringing the "Federal Funds Rate" to a range of 4.00 to 4.25 percent. This marks the first interest rate cut since December 2024.
The decision comes amidst a weakening U.S. labor market, a factor that justifies the interest rate cuts, according to the central bank. The move is expected to have a positive effect on overall investment sentiment and the risk appetite of investors.
In a notable development, Stephen Miran, an ally of former President Donald Trump, has been nominated as a governor of the central bank and was confirmed by the Senate this week. Miran, who may promote a loose monetary policy, was the only person who voted for a 50 basis point cut in interest rates. He is set to replace Adriana Kugler and will participate in the interest rate decision by the end of January 2026.
The long-term outlook for Bitcoin seems as good as never before, with the mix of interest rate cuts, the U.S. debt problem, and a potential loss of Federal Reserve independence creating an extremely favorable environment for Bitcoin in its role as a hedge against currency devaluation or even as an alternative financial system.
However, both Bitcoin and the stock markets were trading slightly lower immediately after the interest rate cut announcement. This could be due to the uncertainty surrounding the Federal Reserve's monetary policies and the potential loss of its independence, which has sparked growing concern among market observers.
The Federal Reserve's monetary guardians have concluded that the inflationary effects of new trade policy are likely to be temporary. Despite August's inflation rate being at 2.9 percent, higher than the Federal Reserve's goal of an average inflation rate of 2 percent, the central bank remains focused on ensuring moderate long-term interest rates.
The central bank meeting was important for the capital market due to the monetary outlook. Additionally, the circulating US dollar money supply (M2) is at a new all-time high despite the tightening of monetary policy in recent years, which also explains the record levels at the capital markets.
The Federal Reserve has a dual mandate to ensure full employment and stable prices. The Trump administration is attempting to remove Federal Reserve Governor Lisa Cook due to mortgage fraud allegations, which would open up another seat in the Federal Open Market Committee (FOMC).
Notable figures such as BlackRock CEO Larry Fink and star investor Ray Dalio have warned that the U.S. could lose its role as the nation behind the reserve currency to digital assets like Bitcoin if it doesn't get its debt problem under control. The potential loss of the Federal Reserve's independence could lead to further loss of trust in the US dollar and market participants seeking alternatives, potentially including Bitcoin.
The Federal Reserve recently emphasized that it must ensure moderate long-term interest rates, which market observers see as a harbinger of possible yield curve controls by the central bank. The central bank expects two more 25 basis point interest rate cuts this year, a decision that could further impact the investment landscape and the value of digital assets like Bitcoin.
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