The Federal Reserve adopts “wait-and-see” approach after three rate reductions, citing steady growth and strong labor market conditions.
Chair Powell’s pivot on crypto banking services marks significant policy shift, suggesting end of Operation Chokepoint 2.0 restrictions.
The tariff uncertainties and presidential influence create complex dynamics for future rate decisions, with minimal cuts projected for 2025.
In a significant development, the Federal Reserve has paused rate cuts. According to , the Federal Open Market Committee (FOMC) kept the federal funds rate steady at 4.25% to 4.5%.
This development came after three consecutive reductions, marking a shift from last year’s aggressive move to combat inflation. The Fed cited steady economic growth, a strong labor market, and persistent inflation as key reasons for the decision.
A New Chapter in Federal Reserve Policy
Despite keeping rates steady, the Federal Reserve remains open to adjustments, and for now, it has opted for a “wait-and-see” approach. The crypto market reacted mildly to the news. Bitcoin price held above $102,000 while Ethereum and Solana dipped slightly, leading to a 2% drop in the combined market cap.
This pause in interest rates marks a turning point in the financial market. Since September, the Federal Reserve has slowly lowered rates to control inflation while keeping the economy stable. However, the Fed hinted at an improving economy with headwinds as inflation has stayed above the 2% benchmark for 45 months.
For comparison, rates stayed under 3% from 2009 to 2021. The current rates are much higher, showing a more hawkish outlook mixed with a milder borrowing rate framed to help grow the stock market.
Higher rates make loans costlier, affecting home mortgages and business loans. In December, the Fed made it clear that it does not expect big rate cuts, with only a small drop predicted for 2025. Notably, the Fed’s rate future remains uncertain, with pressure from multiple sources, including President . He had initially called for an immediate rate cut, pushing for more presidential influence over monetary policy.
Tariffs also add complexity, with Goldman Sachs predicting that trade policy will impact the Fed’s rate decisions and inflation control. Speaking about tariffs, Jerome Powell advocated caution amid uncertainties in the countries it might lock horns with.
“The range of possibilities is very, very wide,” he said. “We don’t know for how long or how much, what countries. We don’t know about retaliation. We don’t know how it’s going to transmit through the economy to consumers. That really does remain to be seen.”
“The range of possibilities is very, very wide,” he . “We don’t know for how long or how much, what countries. We don’t know about retaliation. We don’t know how it’s going to transmit through the economy to consumers. That really does remain to be seen.”
The Place of Bitcoin and Cryptocurrencies
In his speech, the Federal Reserve Chair has made a complete pivot from his earlier stance regarding Bitcoin and digital currencies. From his skepticism about the asset class, the Fed Chair has confirmed that banks may be able to provide their customers with crypto services.
Experts believe this implies the death of , a restriction that has plagued the crypto industry thus far. This shift also underscores the influence of President Donald Trump’s administration.
With pro-crypto leaders like and Howard Lutnick of the Commerce Department, a comprehensive change is expected at different levels of government.
