The cryptocurrency market saw a sharp decline following the Federal Reserve’s announcement on Wednesday to lower interest rates by 25 basis points while adopting a hawkish outlook for 2025. The decision, made during the Federal Open Market Committee (FOMC) meeting, lowered the federal funds rate to a range of 4.25% to 4.50%. However, the Fed’s revised forecast for fewer rate cuts in 2025 sent shockwaves across the crypto market, leading to significant losses.

Hawkish Fed Outlook Sparks Market Sell-Off

While the rate cut matched market expectations, the outlook for 2025 was less favorable. Fed Chair Jerome Powell revealed that the central bank revised its forecast, reducing the number of projected rate cuts for 2025 from four to two. This signaled a more hawkish stance, leading to investor concerns about tighter monetary policy in the coming year.

Additionally, the Fed raised its inflation expectations for 2025, increasing the Personal Consumption Expenditures (PCE) forecast from 2.1% to 2.5%, further dampening market sentiment.

Crypto Market Reaction

The hawkish rate outlook triggered a sell-off across the cryptocurrency market, resulting in significant losses:

• Bitcoin (BTC): Dropped 5.4%, retracing to $100,314.
• Ethereum (ETH): Declined by over 6% in the past 24 hours.
• Altcoins:
  • XRP: Down 10%.
  • Solana (SOL): Fell 7%.
  • Dogecoin (DOGE): Dropped 9%.

The market’s downturn resulted in liquidations totaling $675 million, with Bitcoin and Ethereum witnessing over $100 million in long liquidations each.

Correlation with Traditional Markets

The stock market mirrored crypto’s downturn, with the S&P 500 experiencing a sharp drop following the Fed’s announcement. This highlights the ongoing correlation between cryptocurrency and traditional equities, as both sectors react similarly to Federal Reserve policy decisions.

Implications for the Crypto Bull Rally

The Fed’s hawkish stance has cast a shadow over the current crypto bull rally. Investors now face the prospect of higher-than-expected inflation and a slower pace of rate cuts in 2025, raising concerns about unfavorable market activity in the coming year.

Conclusion: A Challenging Outlook for 2025

The Federal Reserve’s December decision underscores the complexities of balancing economic growth and inflation control. While the immediate rate cut met expectations, the revised outlook for 2025 has introduced uncertainty, causing ripples across the crypto and traditional markets. As investors digest the Fed’s stance, the next few months will likely set the tone for crypto market activity in the new year.