Fed's Mixed Signals: Rate Cut vs. Hawkish Caution Send Bitcoin Slumping

The U.S. Federal Reserve’s 25-basis-point rate cut on September 17, 2025, failed to spark a sustained Bitcoin rally, as the cryptocurrency fell 4.6% to $101,300 following the decision Bitcoin Price Drops to $100.3K After Fed Rate Cut and Powell’s Revised 2025 Inflation Outlook^[5]. The move, the first easing cycle of 2025, was accompanied by a revised inflation forecast and a hawkish tone from Fed Chair Jerome Powell, which dampened market optimism. The central bank raised its 2025 inflation projection to 2.5% from 2.1% and signaled only two additional rate cuts this year, down from prior expectations of three Federal Reserve Lowers Interest Rates by 0.25 Percentage Points in 2025^[9]. This marked a departure from the dovish guidance many investors had anticipated, leading to immediate capital flight from risk assets.

Bitcoin’s price action reflected the mixed signals from the Fed. While the 25-basis-point cut initially weakened the U.S. dollar—a historically bullish factor for Bitcoin—the market struggled to maintain upward momentum. The cryptocurrency stalled near $115,000 ahead of the decision, with liquidation clusters between $115,000 and $114,000 exacerbating downward pressure Bitcoin Price Stalls Near $115K Ahead of Fed Rate Cut Decision^[4]. Post-announcement, Bitcoin dropped to $100,300, erasing earlier gains and highlighting the fragility of investor sentiment. The broader crypto market, valued at $4.12 trillion, also corrected, with Ethereum and altcoins underperforming despite modest gains in some niche tokens Bitcoin Price Stalls Near $115K Ahead of Fed Rate Cut Decision^[4].

The Fed’s revised inflation outlook and Powell’s emphasis on a “risk management cut” underscored the central bank’s balancing act between combating inflation and supporting the labor market Fed Meeting Today: Live Updates - CNBC^[8]. Powell noted that inflationary pressures from Trump-era tariffs were “smaller and slower” than anticipated but warned of potential long-term risks. This ambiguity left markets uncertain about the pace of future rate reductions. The Fed’s summary of economic projections indicated a median forecast for two more cuts in 2025 but only one in 2026, contrasting with trader expectations of more aggressive easing Federal Reserve Lowers Interest Rates by 0.25 Percentage Points in 2025^[9]. Analysts attributed Bitcoin’s post-decision slump to the lack of clarity on the Fed’s path forward, which increased volatility and prompted hedging strategies.

Institutional demand for Bitcoin, driven by ETF inflows and macroeconomic tailwinds, remains a key support factor. U.S. spot Bitcoin ETFs have attracted over $14.8 billion in assets, bolstering demand from institutional investors and corporations . However, the recent price correction suggests that retail participation—particularly from South Korea, a historically influential market—has waned. The Korea Premium Index, which tracks the price difference between Korean exchanges and global markets, fell into negative territory, signaling weak retail demand . In contrast, the Coinbase Premium Index, reflecting U.S. buying pressure, rose as institutional investors continued to accumulate Bitcoin . This divergence highlights a shift in market dynamics, with U.S. platforms now playing a more dominant role in price discovery.

Looking ahead, Bitcoin’s trajectory will hinge on the Fed’s ability to reconcile inflationary pressures with labor market stability. A sustained dovish pivot could reignite a rally, particularly if the dollar weakens further and capital flows into risk assets. However, any indication of prolonged hawkishness or inflationary surprises could trigger renewed selling. The market’s focus now turns to upcoming economic data and the October and December FOMC meetings, where policy clarity will be critical. For now, Bitcoin’s consolidation near $100,000 reflects a cautious stance, with both bulls and bears bracing for the next catalyst.