Bitcoin reclaims $85k after Fed signals slowdown in quantitative tightening

Bitcoin (BTC) has regained the $85,000 mark after the Federal Open Market Committee (FOMC) released its median projection indicating 50 basis-point reductions in interest rates in 2025.

Along with hinting at possible rate cuts, the Federal Reserve also unveiled intentions to taper the pace of its balance sheet reduction, commonly referred to as quantitative tightening (QT), starting April 1.

The monthly limit on Treasuries maturing without replacement will be cut to $5 billion, down from the previous cap of $25 billion. This announcement led to a surge in global markets, with cryptocurrencies also benefiting from the upswing.

Bitcoin soared from $84,235.71 to nearly $86,000 before stabilizing at $85,363 as of the latest update, according to data.

Despite Bitcoin’s nearly 2% rise, not all major altcoins experienced similar gains. Ethereum (ETH) is currently priced at $2,039.11, reflecting a modest 0.6% uptick during the same timeframe, while Cardano (ADA) achieved a slight increase of 0.5%.

In contrast, XRP and BNB showed virtually no fluctuations in price. However, Solana (SOL) breached the $130 mark and was trading at $133.55 at the time of reporting.

Federal Reserve Chair Jerome Powell stressed that this decision should not be taken as an indication of a broader policy shift but rather as a technical adjustment meant to facilitate better market functioning.

Fed’s Rate Path

The revised projections indicate a more cautious outlook among FOMC members regarding the timing and magnitude of rate cuts. The median estimate suggests that the interest rate may hover around 3.9% by the end of the year.

Nine policymakers now expect two cuts in 2025, a decrease from ten in December, while eight predict only one or no cuts, up from four in the prior forecast.

Meanwhile, two members still believe three cuts could occur, a drop from five anticipated in December, with no one expecting more than three reductions.

Long-term expectations, however, remain relatively stable. The median forecast for the federal funds rate by the end of 2026 is projected to be 3.4%, while it is expected to be 3.1% in 2027. The Fed’s long-run projection for a neutral interest rate remains unchanged at 3%.

Furthermore, the Fed’s recent economic forecasts portray a landscape of slow growth. The GDP projection for 2025 has been revised down to 1.7% from 2.1% last December.

The unemployment rate estimate for 2025 has also seen a slight uptick to 4.4% from 4.3%, indicating expectations for mild softening in the labor market.

In addition, the central bank has raised its inflation estimates, now forecasting the Personal Consumption Expenditures (PCE) inflation rate to be 2.7% in 2025, an increase from the earlier 2.5% estimate. The core PCE inflation, which excludes food and energy, is projected to rise to 2.8%, up from the previously forecasted 2.5%.

Tariff Impact

During his press conference following the meeting, Powell discussed concerns about inflationary pressures, particularly focusing on tariffs.

He stated that a substantial portion of recent inflation increases could be linked to tariff-related factors, though he cautioned that the long-term effects remain uncertain.

Powell referred to inflation driven by tariffs as “transitory” while recognizing the challenges in evaluating its implications. He reiterated that the Fed is keeping an eye on economic data for any signs of weakness but made it clear that policymakers are not rushing to implement rate cuts.

With ongoing inflationary pressures and a deceleration in economic growth, the Fed’s latest predictions suggest a more prudent approach to changes in monetary policy. The central bank’s readiness to slow down quantitative tightening while maintaining a cautious outlook on rate cuts reflects the delicate balance between fostering economic stability and managing inflation.

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