Fed Cuts Rates, Crypto Reacts: Rally or Risk Ahead for BTC and ETH?

The US Federal Reserve has cut rates by 0.25%, as expected. Naturally, the stock and crypto markets experienced volatility, with prices initially declining before recovering. And now, markets are rejoicing in green, but will this rally sustain?

Well, let’s find out how the broad market has reacted to the Fed’s decision to deliver the first rate cut of 2025 and what can be expected in the last quarter of the year and further ahead!

Fed’s ‘Neutral Stance’: Balancing Act Between Inflation & Jobs

This week, on Wednesday, September 17, the Fed reduced interest rates for the first time since December, which are now sitting in the 4.00%-4.25% range. Moreover, the central bank has indicated that more cuts can be expected at meetings in October and December to support the labor market.

The labor market has been experiencing weakness, characterized by rising unemployment and declining workweek.

Driven by the risk of increasing signs of weakness in the labor market, the Fed decided to bring down the rates, which helps stimulate the economy by making it cheaper for banks to borrow money, in turn, allowing consumers to get loans at lower rates as well. 

By making it easier to borrow capital, the central bank can stimulate growth, though it also increases inflation.

Inflation is the rate at which the price of goods and services increases, as a result of which, the purchasing power of money decreases over time. In the US, the inflation rate increased to 2.90% in August from 2.70% in the previous month. 

Still, the Fed has reduced rates, a move supported by President Donald Trump, but it fell short of the steeper cuts he has demanded.

A further drop in borrowing costs, however, has been penciled into projections by Fed governors. The year-end rate projection submitted by the Fed governors suggests further rate cuts, which could lower the policy rate to ~3.5%.

The new Fed Governor Stephen Miran, who was picked by Trump and was sworn in just the day before the meeting started, has been the only one to cast the dissenting vote, preferring a large cut. While the interest rate “dots” are not associated with policymakers by name, the latest projections show one forecast far below the others, which has been attributed to Miran.

Following the quarter of a percentage point reduction in the benchmark interest rate, Fed Chair Jerome Powell spoke in a press conference, where he noted that the softening job market is currently the priority for him and his fellow policymakers.

The central bank remains “squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people,” began Powell in his speech.

Laut seiner Abschrift, while the unemployment rate itself remains low, it has edged up, while job gains have slowed. Meanwhile, inflation has been “somewhat elevated.”

The increase in goods price, Powell said, has begun to show through into higher inflation, accounting for most of the rise in inflation, but added that “those are not very large effects at this point.” Policymakers expect them to continue building for the rest of this year and into next year.

In his speech, Powell also noted moderation in growth due to a slowdown in consumer spending and weak activity in the housing sector. As for the effects of evolving government policies, that “remain uncertain.”

When it comes to high tariffs, Powell said that though they have begun to push up prices of some goods, their overall effects on inflation are yet to be seen. It is yet to be assessed and managed. He added:

“Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.” 

In the near term, rising inflation and decreasing employment present a challenging situation, and as a solution, the Fed has taken “a more neutral policy stance.”

“There are no risk-free paths … It’s not incredibly obvious what to do,” Powell told reporters at the end of a two-day policy meeting, adding, “We have to keep our eye on inflation at the same time.”

Policymakers expect inflation to end this year at 3%, well above the 2% target set by central bank officials. Still, the focus among Fed policymakers remains on the labor market rather than the pace at which the price of goods and services is rising.

The unemployment projection released by the Fed remains unchanged at 4.5%, the same as the forecast in June, while the projection for economic growth has been adjusted slightly higher (by 0.2%) to 1.6%.

The current rate of job creation, according to Powell, is below the break-even rate that’s needed to hold the unemployment rate constant. He also noted that businesses are doing very little hiring, which means an increase in layoffs can quickly lead to higher unemployment.

“You see minority unemployment going up. You see younger people … more susceptible to economic cycles … in addition to just overall lower payroll job creation that shows you that at the margin, the labor market is weakening. … We don’t need it to soften anymore.”

– Powell

Hence, the rate cuts. According to Powell, who has been the 16th chair of the Fed since 2018, it’s the broader rate path that matters than the initial rate cut, and the path is moving a bit faster to a stopping point than officials communicated in their June projections.

The projected rate path is not a commitment, though, as with higher inflation still a risk, the Fed will take rate cuts “meeting-by-meeting”, said Powell.

Traders, however, are already expecting a favorable outcome with the rate futures markets showing more than an 89% probability of another rate cut that will bring down interest rates in the 3.75%-4.00% range at the Fed’s next meeting in late October.

Traditional Markets Reaction: Stocks Swing But Hold Gains

The federal funds rate is the interest rate at which banks borrow and lend to other banks overnight. It is set by the Federal Open Market Committee (FOMC).

Consumers do not pay this rate, so it shouldn’t have any impact on the market. But the thing is, the Fed’s move does pave the way for consumers getting some relief on borrowing costs. A 25-basis-point reduction in the benchmark rate can have a trickle-down effect on various consumer loans and savings rates.

For any meaningful difference to be realized, though, consumers need more than a 0.25% cut.
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*Approximate, intraday; see source citations in article.

Some market participants were expecting a half-a-percentage-point reduction in rates. Still, Powell noted at the post-meeting news conference that there “wasn’t widespread support” for a 50 basis point cut among policymakers.

“I think we’ve done very large rate hikes and very large rate cuts in the last five years, and we tend to do those at a time when you feel that policy is out of place and needs to move quickly to a new place. That’s not at all what I feel certainly now, I feel like our policy has been doing the right thing so far this year.” 

– Powell

So, the 0.25 percentage point cut sent traditional markets rising before and in the immediate aftermath of the policy decision, before they traded lower only to close mixed.

The Dow Jones Industrial Average (DJI) is currently trading at 46,018.32, up 8.17% year-to-date (YTD) and 10.6% over the past year. Just this week, DJI surged to its peak of 46,261.95, a strong uptrend from 36,611.78, the 52-week low hit in April.

The S&P 500 (SPX) hit new highs on Wednesday at 6,626.99 before falling to 6,560. Soon, SPX was back at 6,600.35, a massive upward move from the April low of 4,835. SPX is currently up 12.22% YTD, while in the past year, it has gone up by 17.14%.

The Nasdaq Composite (IXIC), meanwhile, is trading at 22,261.326, representing a positive change of 15.28% YTD and 26.28% over the last year.

The small-cap-focused Russell 2000 was one of the biggest winners of the day. With smaller companies relying more on variable financing, they stand to benefit from lower rates, and with that, it jumped past 2,448 before dropping under 2,400. Currently, it is at 2,407.345, up 7.95% YTD. 

When it comes to spot gold prices, they fell almost 1% on the Fed’s decision, retreating from their record high just above $3,707 per ounce. As of writing, the go-to store of value for centuries is trading at $3,669 per ounce.

The movement in the precious metal market is seen as healthy, as gold prices have rallied strongly this year, up 37.5% to date. The record run this year has been driven by sustained purchases by central banks and diversification away from the USD amidst trade frictions and geopolitical uncertainty.

Meanwhile, over the past three years, the gold price has risen by more than 125%.

For gold, major technical support is present at $3,550, with the yellow metal expected to maintain its uptrend in the short term. 

Gold is a traditionally safe-haven asset, which investors flock towards in times of fear, crisis, and uncertainty, as they desert high-risk assets like stocks. The bullion tends to also appeal to investors when rates fall, as lower yields make holding cash less attractive and reduce the opportunity cost of holding gold, which is a non-yielding asset.

Against this backdrop, banks like Deutsche and JPMorgan (JPM -0.13 %) have raised their gold price forecast to an average of $4,000 per ounce for next year. Goldman Sachs (GS + 1.05%) expects prices to go even higher, predicting the bullion to hit $5,000 an ounce, that is, if just 1% of money privately invested in the U.S. Treasury market shifts to gold. 

As for the US dollar (DXY), it was only modestly higher, currently at 96.96, against a basket of major trading fiat currencies.

Little change was observed in treasury yields on Wednesday, but they are lower today as investors assess the central bank’s decision and the broader state of the U.S. economy. The 2-year Treasury yield is currently at 3.524%, the 10-year Treasury yield at 4.045%, and the 30-year Treasury bond yield is at 4.643%.

Typically, lower borrowing costs increase demand for oil and push prices higher, but not this time. Oil prices declined, with Brent crude futures trading at $67.97 a barrel and U.S. West Texas Intermediate futures trading at $63.56. This could be due to the rate cut being already priced in oil markets and Powell stressing the sticky inflation and weakening labor market.

The depressed prices came as the country’s net imports fell to a record low while exports jumped to a two-year high.

Crypto Market Reaction: Bitcoin, ETH & ETF Flows

Much like how the traditional market traded choppy in reaction to what Powell called a  ‘risk-management’ cut, Bitcoin (BTC + 1.17%) also had a volatile day but to a greater degree.

The price of BTC went up to $117,300 before the FOMC, only to dip under $115,000 after the decision was announced. Several hours later, Bitcoin had spiked to nearly $118,000. As of writing, BTC/USD is Handel mit rund 117,500 $, up 24.5% YTD and 96% in the past year, while being 5.4% off the $124,000 peak hit just over a month ago.

The on-chain behavior of short-term investors showed that the market has been “anticipating a positive outcome” from the FOMC meeting, bekannt crypto data provider Glassnode.

The positive price action had many recent buyers back into profitability, which renewed confidence among them. “For this momentum to hold, BTC must remain above this range post-FOMC. Failure to do so could signal a classic “sell the news” market structure,” added Glassnode.

For now, Bitcoin’s monthly performance is currently positive at 8.05%, so far, on track to print the best September in history, according to data from CoinGlass. This puts Bitcoin Q3 returns at +9.24%.

In comparison, Ethereum (ETH + 0.35%) has recorded 83.5% returns in Q3 as ETH trades at $4,600, up 25% YTD and 7.5% away from its $4,950 ATH, which it finally hit late last month. This fresh high, however, is less than a 1.5% increase from the 2021 peak.

Taking a cue from Bitcoin, altcoins also experienced a surge, sending the total crypto market capitalization past $4.2 trillion. Among the top 300 coins by market cap, the likes of PENGU (PENGU + 7.73%), EIGEN (EIGEN + 6.99%), SPX (SPX -0.61 %), BRETT (BRETT + 8.72%), DRIFT (DRIFT + 14.89%), and AVNT recorded double-digit gains in the past 24 hours.

Trotzdem, der Krypto-Angst- und Gier-Index remains almost neutral with a reading of 52 points, down 4 points from last month’s greedy sentiments.

While the market has reacted positively to rate cuts, even more upside may be in store for crypto as a reduction in rates prompts investors to seek other alternatives to obtain higher returns. Combined with subsequent movement, even conservative investors can get persuaded to move to higher-risk assets like stocks and crypto.

Not to mention the continued interest from institutional investors and corporate crypto treasuries.

On Wednesday, though, Bitcoin Spot exchange-traded funds (ETFs) recorded an outflow of $51.3 million that broke the seven-day inflow streak, which brought in a total of $2.87 billion in positive flows, as per auf der anderen Seite. 
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Sources: Farside Investors daily flow table, accessed Sep 18, 2025.

Seit ETFs got approved early last year, they have been a key driver of Bitcoin’s strength, and the latest strong inflow of capital can signal an acceleration in demand that can support prices.

The collective Bitcoin holdings of publicly traded and private companies, ETFs, and countries has reached over 3.7 Millionen BTC worth more than $434 billion, as of Sept. 18.

Bitcoin-Treasury-Unternehmen, in particular, have bought an average of 1,428 BTC per day in September so far. This is the lowest pace since May, and what’s more, about 25% of public Bitcoin treasury firms are currently trading below their BTC holdings value. Lower premiums mean these companies have less capacity to buy more Bitcoin.

"Wann firms trade below NAV, issuing shares becomes dilutive because it gives away more ownership (via undervalued shares) than the value it receives in return (BTC).”

– Vetle Lunde, K33 Head of Research

As for Ether, it recorded $63.6 million in total outflows over the last two days after seeing 1.09 Milliarden Dollar in inflows over five days. Public entities with Ether treasuries, meanwhile, are holding almost 5 million ETH worth $22.86 bln, per StrategicETHReserve.xyz.

Amidst this, a major positive development came from the regulatory side. The SEC erteilte Genehmigung on an “accelerated basis” for listing standards for crypto ETFs’ public trading.

“This approval helps to maximize investor choice and foster innovation by streamlining the listing process and reducing barriers to access digital asset products within America’s trusted capital markets.”

– SEC Chair Paul Atkins said in a statement

Reducing the timeline to list and trade crypto ETFs to just 75 days from up to 240 days could “blow the market wide open,” said Matt Hougan, CIO at digital asset manager Bitwise. Meanwhile, Bloomberg Senior ETF Analyst Eric Balchunas bekannt on X that “the last time they implemented a generic listings standards for ETF, launches tripled. Good chance we see north of 100 crypto ETFs launched in the next 12mo.”

On Wednesday, the SEC also approved the listing and trading for the Grayscale Digital Large Cap Fund, which is mainly made up of Bitcoin (at almost 80%) as well as ETH, SOL, ADA, and XRP.

Future Cuts to Shape the Road Ahead

With a near-unanimous decision, the Fed has cut interest rates for the first time in nine months after lowering them three times last year. This has triggered a relief rally across stocks and crypto.

While underlying challenges, in the form of slowing labor markets, sticky inflation, and global economic uncertainty, remain unsolved, policymakers are weighing further cuts. Goldman Sachs economists are actually expecting three 0.25% reductions in the next three months, which could be a boon for risk-on assets. This means investors may look to allocate more to BTC to benefit from the cheaper borrowing market.

At the same time, Bitcoin enables holders to protect their purchasing power because if there’s one asset that is a clear alternative to ongoing fiat devolution through inflation, that’s Bitcoin, which has a fixed cap supply. 

So, for Bitcoin and by extension crypto, the combination of rate cuts, institutional demand, and regulatory clarity can pave the way for new, exciting highs!

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