The Federal Reserve reduced interest rates by 25 basis points on December 18, setting a ceiling of 4.50%, as expected. While a rate cut is typically bullish for crypto, the market remains unimpressed. 

Over the past 24 hours, cryptocurrencies have declined by 4%, reflecting concerns over the Fed’s projection of higher inflation in 2025 and plans for only two rate cuts next year.

What Do the Interest Rate Cuts Mean for Crypto 

The Fed’s updated projections create a mixed outlook for digital assets. While lower rates signal a softer monetary policy, expectations of higher inflation and a slower pace of rate cuts dampen optimism. 

Investors were hoping for a faster rate reduction cycle in 2025, which would have boosted risk-on assets like cryptocurrencies.

“Stock markets and crypto have been exploding for over a year with high interest rates and you’re worried that they’ll stop pumping because the fed would cut as much as you heard someone say they should,” wrote popular influencer ‘Gum’ on X (formerly Twitter).

Last week’s US Consumer Price Index (CPI) data for November, showing a 2.7% year-over-year increase, briefly lifted market sentiment. Bitcoin surged to a new all-time high of $108,000 earlier this week on the back of those inflation figures aligning with forecasts. 

However, the enthusiasm appears to have faded, with macro uncertainties taking center stage.

“The Fed is cutting rates because the US govt cannot afford the interest payments on $36.2 trillion in debt. We have a $2 trillion budget deficit. We are paying over $1.2 trillion in interest on the debt. They probably WANT inflation to go much higher. That inflates the debt away. But it causes insane amounts of financial damage to just about everyone else,”

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Author: Mohammad Shahid