Crypto and equities markets jumped on Wednesday after the Federal Reserve opted to hold rates steady.

Investors breathed a sigh of relief after the US central bank remained on course to make two cuts to interest rates this year.

The move was expected: before Wednesday’s announcement, investors had put the chance of a rate drop at about 1%, according to the CME’s FedWatch tool.

Following the Fed’s statement, Bitcoin increased 1.3%, to $85,623, in mid-afternoon trading New York time, and Ethereum edged up 0.8% to $2,043, according to CoinGecko.

Sobering forecast

Even so, the Fed’s economic forecast for the US was sobering as it released projections of slower growth and rising inflation in the US.

The Federal Open Markets Committee, or FOMC, revised growth projections for 2025 downward to 1.7%, from 2.1%.

And the FOMC revised its inflation projections upward to 2.8%, from 2.5% in December.

“Uncertainty around the economic outlook has increased,” the FOMC said in a statement.

After largely taming inflation stemming from the emergency spending taken during the Covid-19 pandemic, the Fed started cutting interest rates last year.

Investors in risk-on assets such as cryptocurrencies and stocks look for lower rates because it means the economy is growing and more money will rotate out of fixed income assets such as bonds.

But President Donald Trump’s commitment to 25% tariffs on Canada and Mexico, the US’ two top trading partners, plus China and potentially the European Union, has clouded the picture.

‘Everybody agrees that the flight against inflation has stalled.’

—  Economist Mohamed El-Erian

Tariffs tend to raise prices for consumers and businesses as they percolate into the economy. And inflation has remained stubbornly high at about 3%.

This has fanned fears that the Fed’s commitment to interest rate cuts will waver, and stocks and crypto have fallen sharply as a result of this and other macroeconomic concerns.

Bitcoin had plunged into a potential bear market, while the rest of the crypto market has tumbled 20%, to $2.9 trillion, since Trump took office on January 20.

Traditional markets have also been fried, with both the S&P 500 and the tech-heavy Nasdaq100 plunging into correction territory in the last month.

2% target

Addressing a crowd at Blockworks’ Digital Asset Summit Wednesday, economist Mohamed El-Erian said he had recently increased his odds a recession would hit the US from a one-in-ten chance to one-in-four.

“Everybody agrees that the flight against inflation has stalled,” he said.

“If [the Fed] was really serious about a 2% inflation target, the market would be speculating about when is the next hike, not when is the next cut.”

Meanwhile, investors are split on the outcome of Trump’s trade wars and cost cutting efforts, according to El-Erian.

On the one hand, some believe it will unleash the private sector and tame the national debt.

“Then there’s the other possibility, which is the Jimmy Carter possibility,” he said, referring to the one-term US president who lost reelection in 1980 amid soaring inflation and a moribund economy.

“That policy pushes you into a stagflation which persists.”

Relief rally

Even so, all investors apparently wanted to see on Wednesday was no surprises from the Fed.

Optimistic investors staged a last-minute rally in the hours before the FOMC’s statement at 2 PM New York time.

Bitcoin jumped 3.2% and Ethereum spiked 8%.

The big winner was XRP, the Ripple connected cryptocurrency, which soared 12% after the Securities and Exchange Commission dropped an appeal against the company.

Yet sceptics remain convinced the rally will prove short-lived.

“If the Fed maintains a hawkish stance, a significant price recovery in the short term is unlikely,” James Butterfill, head of research at crypto research firm CoinShares, told DL News this week.

So far, the stance remains even. The question now confronting investors as the economy absorbs the impact of Trump’s trade war is for how long.

Aleks Gilbert is DL News’ DeFi Correspondent based in New York. You can contact him at aleks@dlnews.com. Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at psolimano@dlnews.com.