- Fed cuts rates 25 basis points to 4.00%-4.25% range in first 2025 reduction
- FOMC officials split on future cuts with 10 of 19 supporting more reductions this year
- Labor market weakening drives decision as unemployment rises to 4.3%
- Crypto markets eye $7.2 trillion money market fund exodus to risk assets
- Bitcoin targets $130,000 as rate cuts fuel institutional investment flows
The Federal Reserve delivered its first interest rate cut of 2025 on Wednesday, reducing the benchmark rate by 25 basis points to a range of 4.00% to 4.25%. The decision marks a shift in monetary policy as economic conditions show mixed signals across employment and inflation metrics.
Fed Chair Jerome Powell announced the unanimous decision at a press conference following the Federal Open Market Committee meeting. The move comes after months of careful evaluation of economic data, particularly weakening labor market conditions that have influenced policymaker thinking.
The cut represents the Fed’s response to concerning employment trends. Job growth has slowed dramatically, with the economy adding just 22,000 positions in August. The unemployment rate increased to 4.3% from the previous month’s 4.2%, signaling broader labor market weakness.
June employment data was recently revised downward into negative territory, showing a loss of 13,000 jobs. Combined with below-trend July growth, these three consecutive months of declining employment momentum contributed to the Fed’s decision to ease monetary policy.
FOMC Officials Split on Future Rate Cut Path
Despite agreement on Wednesday’s cut, Federal Reserve officials remain divided on the appropriate path forward for 2025. Powell revealed that 10 of 19 FOMC participants support implementing two or more additional rate cuts this year, while nine members favor fewer reductions.
The Fed’s quarterly dot plot projections illustrate this division clearly. Nine officials now project three total cuts for 2025, while six see just one cut. One member expects no further cuts, while another anticipates six reductions by year-end.
New Fed governor Stephen Miran provided the meeting’s only dissent, preferring a larger 50 basis point cut instead of the implemented quarter-point reduction. Miran, recently appointed by President Trump, participated in his first FOMC vote just days after confirmation.
Powell emphasized the challenge facing policymakers in balancing the Fed’s dual mandate of price stability and maximum employment. Core inflation remains elevated at 3.1% for August, well above the central bank’s 2% target, complicating rate cut decisions.
The median FOMC projection anticipates interest rates reaching 3.6% by late 2025, declining to 3.4% by 2026, and settling at 3.1% by 2027. However, Powell cautioned that these projections represent probabilities rather than predetermined policy paths.
Crypto Markets Position for Capital Inflow Wave
Cryptocurrency markets are closely monitoring the rate cut’s potential impact on asset allocation patterns. Lower interest rates typically drive capital from yield-bearing instruments toward higher-risk investments, including digital assets.
Research from 21Shares estimates that $7.2 trillion to $7.5 trillion currently sits in money market funds earning yields that will decline following rate cuts. This massive pool of capital may seek alternative investments as traditional safe-haven returns diminish.
Bitcoin, trading near $117,305, approaches its all-time high around $124,000 set earlier this year. Crypto strategist Matt Mena projects the leading cryptocurrency could experience a fourth-quarter rally pushing prices past previous records.
Polymarket prediction data shows 62% of traders expect Bitcoin to reach $130,000 in 2025. This optimism reflects growing institutional interest and expectations that continued monetary easing will support risk asset valuations.
The Federal Reserve will continue evaluating economic conditions on a meeting-by-meeting basis to determine future policy adjustments. Wednesday’s decision represents the first easing move since December 2024, with additional cuts dependent on labor market and inflation developments.
Economic projections accompanying the rate decision show GDP growth upgraded to 1.6% from the previous 1.4% estimate, while inflation expectations remain steady at 3.1%.
