The Federal Reserve kept its benchmark interest rate steady for a second consecutive meeting, signaling concerns about slower economic growth and persistent inflation pressures. While the central bank opted not to raise borrowing costs further, it also adjusted its balance sheet policy, a move that reportedly drew internal dissent.

Crypto Market Reacts

Amid the announcement, the cryptocurrency market has shown renewed optimism as prices of major cryptocurrencies surged. At the time of publication, Bitcoin was up 4% in the past day at $84K. Ethereum has also gained 8%, trading at $2,034, while XRP is leading the surge after soaring 10% to $2.47 in the same period.

Fed maintained its benchmark fed funds rate range at 4.25%-4.50% and slashed growth expectations. Inflation forecasts were also revised higher, signaling a cautious outlook from policymakers.

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty around the economic outlook has increased, FOMC statement read. "The Committee is attentive to the risks to both sides of its dual mandate."

Additionally, the institution also announced plans to slow the pace of its balance sheet runoff starting in April, adding another layer of complexity to its monetary policy approach. The Fed’s latest economic projections now see U.S. GDP growing just 1.7% in 2025, down from the 2.1% forecast in December.

Growth estimates for 2026 and 2027 were also trimmed, reflecting growing uncertainty about the economic trajectory. “As with real activity and inflation, the outlook for the future path of the federal funds rate is subject to considerable uncertainty,” the Fed stated, hinting at concerns over trade policies and other global economic risks.

Economic Growth and Inflation

Despite economic headwinds, the Fed’s projections suggest policymakers still anticipate ending 2025 with a benchmark interest rate of 3.9%, implying only two rate cuts by year-end. The forecasts for 2026 and 2027 stand at 3.4% and 3.1%, respectively, reinforcing expectations that borrowing costs will remain elevated in the near term.

Crypto reacts as Fed holds interest rates steady

In December, the central bank forecast inflation at 2.5% for 2025 and GDP growth at 2.1%. Given recent economic data, there is speculation that the Fed may raise its inflation outlook while lowering its growth expectations.

With uncertainty surrounding economic growth, inflation, and future rate moves, the FOMC's latest meeting is now shaping investor sentiment. For crypto traders, the short-term volatility might be significant, but in the broader context of digital asset markets, it remains business as usual.

Source: Finance Magnates