Reasons Behind the Correction of Bitcoin and S&P 500 After the Fed's Interest Rate Cut
Recently
Federal Reserve Chair (The Fed), Jerome Powell, announced the decision to lower the benchmark interest rate by 25 basis points (bps), bringing the rate to a range of 4%-4.25%. Theoretically, this move should create positive sentiment for risk assets. However, the market's reaction was quite the opposite, where the two main assets, namely the S&P 500 index and Bitcoin (BTC), actually experienced a decline or correction.
The main cause of this anomaly is the release of U.S. economic data this month that did not align with The Fed's expectations for a more aggressive interest rate cut. Powell essentially only met market expectations with a slight cut, as the existing data was not strong enough to support a looser monetary policy.
Specifically, the Consumer Price Index (CPI) data showed an increase to 323.98 points from the previous 323.05 points, indicating that price pressures at the consumer level still exist. Additionally, the annual inflation rate in the U.S. was recorded to have risen to 2.9%. These figures indicate that the struggle against inflation is not yet fully over.
Furthermore, Powell emphasized that The Fed aims to bring the inflation rate back to the ideal level of 2%. Before that target is achieved, the room for The Fed to make more significant interest rate cut decisions will remain limited. This is what prompted investors to react negatively, as the current slight cut is considered insufficient to sustain the market amid still warm inflation data.
Disclaimer Alert. Not Financial Advice (NFA). Do Your Own Research (DYOR).
