The Fed's Cautious Stance

Unlike their counterparts at the European Central Bank (ECB), the Federal Reserve (the Fed) has taken a more patient approach in its monetary policy decisions. In a unanimous vote, the Fed's governors opted to keep the key interest rate unchanged, ranging between 5.25% and 5.50%. This decision was driven by the persistent high inflation, which the Fed is determined to bring down to its 2% target.

The Fed's Commitment to Inflation Control

The Fed's statement reiterated its strong commitment to tackling inflation, emphasizing that it will "carefully evaluate incoming data, the evolution of the outlook, and the balance of risks" before considering any rate adjustments. The central bank made it clear that it does not expect to reduce rates until it has gained greater confidence that inflation is moving sustainably closer to the 2% goal.

The Dot Plot and Economic Forecasts

The Fed's latest economic projections, known as the "dot plot," provide insights into the views of the 19 FOMC (Federal Open Market Committee) members. The dot plot reveals a shift in expectations, with more governors now anticipating either one or two rate cuts this year, compared to the previous projection in March.

Quantitative Tightening and Balance Sheet Reduction

The Fed has already made significant progress in reducing its balance sheet, shedding more than $1.7 trillion of assets since the start of Quantitative Tightening (QT) in July 2022. Going forward, the pace of balance sheet reduction will slow, with the Fed decreasing its holdings of Treasury bonds by $25 billion per month and mortgage-backed securities by $17 billion per month.

Bitcoin's Reaction and the Fiat System's Implications

Bitcoin's reaction to the Fed's announcements has been mixed, but the overall sentiment is that the market is moving closer to the anticipated rate cuts. As the fiat system is inherently a Ponzi scheme requiring perpetual expansion, the money supply (M2) is expected to start growing again soon. This resurgence in money supply could lift the valuations of various assets, including the finite and scarce asset, Bitcoin.