The Federal Reserve’s decision to deliver a 25 bps rate cut has put markets on alert. The move lowers the federal funds rate range to 4.00%–4.25%, its lowest level since late 2022. Traders and analysts had largely priced in this step, but attention quickly shifted to the Fed’s tone and its outlook for the remainder of 2025. With job growth slowing, inflation still elevated, and political pressure building, this rate cut may have wide-reaching effects for crypto markets, especially Bitcoin.

Fed’s First Rate Cut of 2025

On Wednesday, the Federal Open Market Committee (FOMC) voted to trim the benchmark rate range by 25 basis points to 4.00%–4.25%. Chair Jerome Powell called it a “risk management” cut, highlighting the need to balance a cooling labor market against inflation that remains above the 2% target. Ten members supported the move, while one dissenter pushed for a larger half-point cut.

The decision was widely expected after weeks of soft employment data. Revisions showed that the U.S. economy added 911,000 fewer jobs than previously reported through March, with the August report showing near-stalled job creation and unemployment climbing to 4.3%, the highest since 2021. Powell warned that the labor market faces “downside risks” that could intensify if layoffs increase.

Why the Fed Acted Now

Alongside the labor market slowdown, inflation has cooled from earlier peaks but remains above target. Producer prices fell 0.1% in August, and annual PPI rose just 2.6%, below expectations. This gave policymakers room to ease without signaling panic. Powell emphasized that the Fed remains committed to its dual mandate and will act carefully to avoid triggering stagflation.

Political pressure also played a role, with President Donald Trump publicly calling for deeper cuts. One FOMC member, Stephen I. Miran, aligned with this position and voted for a 50 bps reduction. Despite this pressure, Powell said the Fed would remain independent and avoid being “rushed” into larger cuts.

Market Reaction: Bitcoin and Beyond

Bitcoin initially jumped nearly 1% following the announcement, briefly climbing above $117,000 before giving up gains. Within an hour of Powell’s press conference, over $105 million in crypto positions were liquidated, mostly from long traders. Bitcoin is now trading near $115,000, roughly 7% below its all-time high, as volatility increased heading into the weekend.

Technical analysts point to a key support level at $115,800. A breakdown could open the door to $114,400 or even $113,200, where stronger support sits. Conversely, reclaiming $117,300 could allow Bitcoin to retest resistance near $118,500–$119,000 and potentially set up for a push toward $126,000 if momentum improves.

Fed Guidance and Outlook

Powell’s remarks suggest that future decisions will be data-dependent and made on a meeting-by-meeting basis. The FOMC’s dot plot showed a split committee: ten members expect two or more cuts this year, while nine project fewer or none. The median projection sees rates falling to 3.6% by the end of 2025 and gradually moving toward 3.1% by 2027.

For markets, the guidance was crucial. As one analyst noted, for traders to turn fully bullish, they wanted three signals: a rate cut today, a clear path for more cuts this year, and confidence that inflation will ease in the next few months. While the first condition was met, Powell stopped short of committing to a faster pace of easing, leaving uncertainty about the next steps.

What’s Next for Crypto Traders

The Fed’s cautious tone leaves crypto markets at a crossroads. Bitcoin and altcoins tend to benefit from lower interest rates, as cheaper capital encourages risk-taking. However, lingering inflation risks and political tensions could cap gains in the short term.

Liquidity shifts could play a role going forward. Analysts estimate that $7 trillion parked in money market funds will start to see falling yields, potentially sending capital back into equities and digital assets. Whether that flow materializes will depend on upcoming data and the Fed’s stance at its next meetings.

Closing Thoughts

The Federal Reserve’s 25 bps rate cut to 4.25% marks a significant moment for markets, but it is only one step in a longer process. For Bitcoin, the cut provides short-term relief but not a guarantee of sustained upside. Traders will watch labor market updates, inflation prints, and Powell’s next press conference for clues about further cuts. The Fed’s ability to steer between slowing growth and sticky prices will likely determine whether Bitcoin holds support or faces a deeper correction in the weeks ahead.