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Fed Hold Sees Bitcoin Soar
Powell's dovish stance gave traders confidence that rate rises are in the past, prompting them to pour money into risk assets.
Yesterday, the Federal Reserve announced it was holding interest rates steady at 525-550 bps. While the move was widely anticipated, the market's reaction was nonetheless impressive, as bitcoin rocketed from its recent low to reclaim $42,000: The 50% level from the peak of the last bubble to the bear market low, and a critical line in the sand for bulls.
Risk assets all benefited, with the S&P moving above 4,700 and gold rallying back above $2,000. US Treasury yields fell, signaling a turn from two years of tightening monetary policy.
The Dow Jones was noteworthy, as the benchmark index hit its all-time high.
The Fabled "Fed Pivot"
While maintaining rates at a 22-year high, the Federal Reserve signaled a softer stance for the future. Central bank officials forecast 75 basis points of cuts in 2024, deviating notably from previous projections. This dovish outlook was further affirmed by Powell's comments, suggesting that the benchmark rate is at its peak for this tightening cycle. The Open Market Committee's decision to keep rates steady at 5.25 to 5.5 percent was accompanied by the Fed's "dot plot", forecasting a reduction to 4.5 to 4.75 percent by the end of 2024 and further lowering to 3.5 to 3.75 percent in 2025.
Market Reactions And Economic Outlook
Yields on two-year Treasuries experienced their most significant daily drop since the Silicon Valley Bank collapse in March, falling to 4.43 percent post-announcement. Meanwhile, 10-year yields also declined, falling below 4 percent for the first time since August. The S&P 500 index rose 1.4 percent, hitting its highest level since January 2022. These movements reflect investors' optimism about reduced borrowing costs and a potentially more accommodating monetary policy.
Bitcoin displayed particular bullishness, wiping out much of its recent losses and climbing from $41,000 to almost $43,000.
Balancing Inflation Control And Economic Growth
The Federal Reserve's latest stance aims to balance inflation control with economic stability. Despite the expectations of rate cuts, the Fed remains committed to returning inflation to its 2 percent target, albeit with a more cautious approach to avoid overly restricting the economy. The central bank's projections for unemployment and core inflation have been adjusted, with a slight increase in joblessness and a marginal reduction in inflation rates expected. This nuanced approach indicates the Fed's readiness to adjust policy in response to evolving economic conditions, with a focus on maintaining stability without causing significant job losses.
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