Central bank reduces interest rates.
The Federal Reserve, the US central bank, recently cut the interest rate by 25 basis points, marking the first reduction since December 2024. This decision, made amidst growing uncertainty about President Trump's trade policy's impact on inflation, has been generally seen as positive for capital markets. However, concerns are rising about the potential loss of independence for the Federal Reserve.
The Federal Reserve, with its dual mandate to ensure full employment and a stable price level, has kept the interest rate unchanged since Trump's inauguration. The recent cut has brought the "Federal Funds Rate" range to 4.00 to 4.25 percent.
Stephen Miran, a top White House economic advisor and veteran of Trump's administrations, was recently nominated by the President to serve as a governor of the Federal Reserve. This move reflects Trump’s push for lower interest rates, which could increase political pressure on the Federal Reserve, potentially challenging its independence.
The Trump administration is also attempting to remove Federal Reserve Governor Lisa Cook. This action, if successful, could further erode the Federal Reserve's independence.
The mix of interest rate cuts, the US debt problem, and the potential loss of independence of the Federal Reserve creates an extremely positive environment for Bitcoin. Some market observers see Stephen Miran's emphasis on moderate long-term interest rates as a harbinger of possible yield curve controls by the central bank. This could negatively affect Bitcoin’s value due to reduced perception of it as a hedge against policy uncertainty.
In August, inflation was at 2.9 percent, higher than the central bank's 2 percent target. The central bank's monetary policy outlook was of great importance to the capital market during the recent central bank meeting. Lower interest rates can have a positive effect on overall investment sentiment and the risk appetite of investors.
However, a more rapid pace of money depreciation could occur if a Trump-aligned Federal Reserve opens the money taps wide to support the US budget. This could lead to further loss of trust in the US dollar, potentially benefiting Bitcoin in the long run.
Both Bitcoin and the stock markets were trading lower immediately after the central bank meeting, indicating a cautious response from the markets. The Federal Reserve's decision to cut interest rates and the ongoing political pressure on the bank are issues that will continue to be closely watched by market observers.
Stephen Miran was confirmed by the Senate and participated in the recent interest rate decision. His role in the Federal Reserve could shape the bank's monetary policy in the coming months and years, potentially influencing the US economy and financial markets significantly.
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