Federal Reserve lowers federal funds rate - Bitcoin reaches a new all-time high

The Federal Reserve (Fed) has just lowered the federal funds rate by 25 basis points to a range of 4.50 to 4.75%. At the FOMC meeting in September, the Fed had already cut the interest rate by 50 basis points, thus initiating the long-awaited turnaround in interest rates. In response to high inflation following the coronavirus pandemic, the monetary authorities had raised the federal funds rate at record speed - from close to zero to over 5%.

The announcement came as little surprise - the market was already expecting a rate cut of this magnitude with a probability of almost 100%. However, the capital markets ultimately responded positively to the speech and the subsequent press conference by Fed Chairman Jerome Powell. Bitcoin scratched the USD 77,000 mark for the first time. The stock markets also recorded new all-time highs in response.

Central bankers try to control inflation with the monetary policy instrument of the federal funds rate In September, the inflation rate was 2.4%, which was once again very close to the infamous 2% target. This was the lowest figure since February 2021 and well below the high of 9.1% in June 2022.

As not only monetary policy but also budgetary policy in the US has a major influence on the price level, the outcome of the US election is likely to have a significant impact on the Fed's future course of action. Some experts expect inflation to pick up again under Donald Trump's presidency, which could throw a spanner in the works of the Fed's plans to cut interest rates further. The reason for this is the tax cuts and tariff increases announced by the Republican. When asked about the topic, however, Fed Chairman Powell kept a low profile during the Q&A session.

However, the fact that the next president is a supporter of low interest rates and could reshuffle the central bank suggests that monetary policy is likely to remain loose under Trump. For example, it can be assumed that he will replace Jerome Powell, whom he appointed himself in 2018, when his term of office expires in May 2026. During his last presidency, Trump complained that the Fed Chairman was pursuing a monetary policy that he felt was too restrictive.

The potential Treasury Secretary under Trump, Bitcoin supporter Scott Bessent, also explained in an interview with CNBC that inflation concerns are unfounded due to the stronger economic policy he expects. Furthermore, Bessent said, Trump will be careful not to trigger price increases.

I guarantee you, the last thing [Trump] wants, is to cause inflation.
_{Scott Bessent told CNBC}

We'll have to wait and see what happens. First of all, interest rates are likely to be cut several more times. The market is also assuming this. At the end of next year, the majority of market observers see the federal funds rate in the range of 3.5 to 4.0 percent - i.e. around 100 basis points below the current level.