Bitcoin Surges 10% as Fed Slows Balance Sheet Reduction

Bitcoin has seen a notable increase in value following the Federal Reserve's announcement to decelerate the reduction of its balance sheet. This policy adjustment has stimulated risk appetite and altered global liquidity conditions, fostering a more conducive environment for the cryptocurrency. The Federal Reserve's move to limit the runoff of Treasury securities to $5 billion per month, a decrease from the previous $25 billion cap, has been a pivotal factor in this market transition. This action is part of a wider strategy to alleviate financial conditions and bolster economic stability.

The Federal Reserve's decision to slow the pace of its balance sheet reduction is a technical adjustment aimed at ensuring smooth market functioning. Federal Reserve Chair Jerome Powell clarified that this decision should not be seen as a broader policy shift but rather as a response to current market conditions. The central bank's updated projections indicate a more cautious approach regarding the pace and extent of future rate cuts. The median forecast for the federal funds rate at the end of 2025 is approximately 3.9%, with varying expectations among policymakers regarding the number of rate cuts in 2025.

The Federal Reserve's latest economic forecasts suggest slow economic growth, with the median 2025 GDP projection revised downward to 1.7% from 2.1% in December. The unemployment rate forecast for 2025 has slightly increased to 4.4% from 4.3%, indicating expectations of modest labor market softening. The central bank has also adjusted inflation projections upward, expecting the Personal Consumption Expenditures (PCE) inflation rate to reach 2.7% in 2025, up from the previous 2.5% estimate. Core PCE inflation, which excludes food and energy, is projected to rise to 2.8%, compared to the earlier forecast of 2.5%.

The Federal Reserve's decision to slow the pace of its balance sheet reduction has positively impacted global markets, including the cryptocurrency market. Bitcoin's price has surged in response to this policy shift, reclaiming the $85,000 threshold following the Federal Open Market Committee's median forecast of 50 basis-point cuts in interest rates in 2025. This surge in Bitcoin's value reflects the broader market's response to the Federal Reserve's policy adjustments and the resulting shift in global liquidity conditions.

The Federal Reserve's decision to slow the pace of its balance sheet reduction is part of a broader strategy to ease financial conditions and support economic stability. The central bank's willingness to slow quantitative tightening while maintaining a cautious stance on rate cuts reflects a balancing act between sustaining economic stability and controlling inflation. This policy shift has created a more favorable environment for risk assets, including Bitcoin, and has fueled risk appetite among investors. The Federal Reserve's decision to slow the pace of its balance sheet reduction is a positive sign for the cryptocurrency market and is expected to support further growth in the coming months.