Fed cuts rates by 25bps as Trump pushes for more, crypto markets eye liquidity boost

As most expected, the Federal Open Market Committee (FOMC) lowered the benchmark federal funds rate by 25 basis points (bps) to a range between 4% and 4.25%, by a vote of 11-1.

"Recent indicators suggest that growth of economic activity moderated in the first half of the year," the U.S. Federal Reserve said Wednesday in a statement. "Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated."

The Fed most recently trimmed interest rates by 25 bps in September, November, and December 2024. According to Wednesday's FOMC statement, the Fed is signaling two more cuts by year end.

President Donald Trump has repeatedly called for rate cuts since taking office in January, even floating the idea of firing Fed Chairman Jerome Powell. In a Truth Social post on Monday, Trump said the Fed must cut rates "bigger than [Powell] had in mind."

Lower interest rates typically make traditional investments less attractive, leading many investors to seek higher returns through alternative assets such as cryptocurrencies. Wednesday's rate cut could inject more liquidity into the markets and lead to increased trading volume for bitcoin, ether, and more.

Analysts noted that a dovish shift in the dot plot could fuel a sharper rally, while a more cautious stance might strengthen the U.S. dollar and keep markets choppy in the near term. In fact, the next 100bps could be the most consequential for asset prices this cycle.

"While the Fed Funds rate is 100bps below its 2024 peak of 525–550bps, the real story lies in the next wave of rate cuts," Kraken Global Economist Thomas Perfumo said in an email. "Investors see normalized interest rates as closer to 300–350bps. Given the convexity of interest rates and their impact on asset prices, the next 100bps could be more consequential than the last."

The price of bitcoin traded around $116,000 at publication time, down 0.6% over the past 24 hours according to The Block's price data. Ethereum ticked slightly higher to $4,491.

September is historically one of the worst months of returns for both cryptocurrencies and the broader markets, but things may be setting up for an end-of-year rally.

"Watching the crypto market right now is like watching the Super Bowl pre-game show," Bitwise CIO Matt Hougan wrote in a Tuesday note. "Things are set up for a spectacular end-of-year rally, with rate cuts, surging exchange-traded product inflows, rising concerns about the dollar, and incredible momentum in tokenization and stablecoins."

On Tuesday, the U.S. Senate confirmed crypto-friendly Stephen Miran to the Federal Reserve Board. He was previously a senior strategist at Hudson Bay, an investment firm that has been trading claims in the FTX bankruptcy. Miran was the only Fed governor who preferred to lower the target range by 0.5%.

Also of note, the Federal Reserve will hold a conference next month that will include discussions around stablecoin business models and the tokenization of financial products and services.

Interest rate impact on stablecoin yields, institutional flows

While the Fed's rate cut is broadly positive for risk assets, CoinFund President Chris Perkins says the impact on stablecoins is more nuanced.

"Yield is central to their value, and issuers aren't really hurt by lower rates. In fact, when rates go down, demand for stablecoin yield often goes up, a dynamic the market hasn't fully grasped," Perkins said in a statement. "Issuers are already distributing significant interest, so the effect on them is limited. In DeFi, yield-seeking behavior will continue regardless."

The CoinFund president noted that 35% of USDT holders use it as a savings vehicle, while 63% of transactions involve USDT.

"So, will lower rates slow stablecoin adoption? I don't think so," Perkins said. "Most users aren't receiving direct interest anyway, and stablecoins will remain a key gateway for DeFi participants who want the dollar as a store of value.”

Lower rates may blunt some of the debate around yield-bearing stablecoins, since it becomes less compelling in a low-rate environment.

"More broadly, I don't think there's reason to expect rates to return to zero anytime soon, but the path clearly favors payments utility over yield as the long-term driver for stablecoins," said Will Beeson, co-founder of Uniform Labs, who formerly led the tokenized assets division of Standard Chartered.