Fed Sees Just One Rate Cut This Year; Bitcoin Gives Up Session Gains

BY Coindesk | ECONOMIC | 06/12/24 02:14 PM EDT By Stephen Alpher
  • The Fed held policy steady, but now expects just one rate cut this year versus a projection of three rate cuts previously.
  • Bitcoin gave up big early session gains following the Fed's hawkish turn.

As expected, the Federal Open Market Committee of the U.S. Federal Reserve Wednesday held its benchmark fed funds rate range at 5.25%-5.50%, but its economic outlook now calls for just one 25 basis point rate cut this year.

"In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective," said the FOMC in its policy statement. The "modest" wording is notable because the previous policy statement complained of a "lack of progress" towards lower inflation.

Updating its economic projections, the Fed's median expectation for the fed funds rate at year-end 2024 is now 5.1% versus 4.6% three months ago. This means the central bank is now anticipating just one 25 basis point rate cut this year versus 75 previously. The 2025 year-end fed funds expectation is now 4.1%, suggesting 100 basis points in rate cuts next year.

At his post-meeting press conference, Fed Chairman Jerome Powell said inflation remains too high and the central bank's focus remains on returning that gauge to its 2% target.

Earlier today, the U.S. Consumer Price Index report for May showed an unexpected slowdown in inflation last month. The news sent crypto, stock and bond markets sharply higher as traders ratcheted upward their expectations for the commencement of Fed rate cuts.

The hawkish turn in the Fed economic projections, later confirmed by Powell in his press conference, has taken the steam out of those rallies. Bitcoin {{BTC}} at 19:00 UTC had returned back to $67,300, flat over the past 24 hours. U.S. stocks and bonds closed the day with gains, but well off session highs.

Update (19:15 UTC, 6/12/24): Adds comment from Powell press conference and price reaction.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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